Article 20 in a series of 40 articles on P2P, property and CrowdProperty. 

Previously, we reviewed the diverse sources of our loan capital. Below, why liquidity is so important for filling your loan. In the next article, we will look at what the P2P trade body does, and how it safeguards the interests of customers.

To fund a development project, you need a secure source of capital: one that can fund you quickly, with minimal red tape, and that you can rely on. What you don’t want is to be told ‘yes’ and then to be left hanging about while your funding partner of choice scrabbles round to get the cash together – whether a platform or an institution.

Speed and certainty is what you want. Why? Because that’s what vendors want and it can secure you a better deal… meaning better economics for you (and better security for lenders).

At a time when there is a feeding frenzy to disintermediate the banks, with almost anyone who can cobble together an app wanting a slice of the action, promises are often more plentiful than pounds sterling. So when it comes to alternative finance, you need to choose carefully.

Liquidity is critical, and much of this is dependent on how strong a brand the platform has among as diverse a lender base as possible. Beware of small or new platforms that have set up and not yet built a trusted brand: don’t assume your project will be funded. Success or failure will be mostly down to the liquidity on the platform rather than the quality of your project.

It’s easy for platforms to say they fund projects, but do they? We know of platforms that have tried to acquire borrower customers having never funded a project; also, platforms where projects have been listed for three months. That’s no speed and certainty, in fact quite the opposite.

Don’t get caught out: do some due diligence. Research the platform, using 4th Way, Trustpilot and other sites, but also register with platforms you’re considering and have a nose round to get a feel for what’s going on: it’s instructive tracking when someone else’s project launches and how it progresses.

 

Know your funder

In short, you need to know your funding partner. Below we’ve provided a short list of questions you need to look into, in order to ensure that your promised pool of capital doesn’t turn out to be a rapidly evaporating puddle, through no fault of your own:

  • How many years has the platform been operating? How much have they raised? That will give you an idea of the volume of capital they are able to generate. Pay particular attention to recent business
  • Do they actually have more than a few investors in each project? How many investors do they have registered overall? If they don’t tell you, then they’re hiding important information
  • What is the transparency they provide to investors? Look at their data (and if they’re not showing you that data, don’t give them your business) and crucially check whether they are sharing their data with third party validators (eg: Brismo Verified or 4th Way)
  • What’s the platform’s default rate? Importantly, is it growing? Because, where defaults are growing, investors are not likely to be coming back
  • Do projects fund quickly (seconds, minutes or hours rather than months)? One way of gauging this is to look at the projects they have available on their website. You might think it’s a good thing to have a number of projects currently funding on a platform. Counterintuitively, however, that’s not the case, because it means they’ve not. In contrast, CrowdProperty actually only trades for a few minutes each week, as our lenders seize the opportunities so quickly. So we rarely have any projects listed because we have so much investment capital

Don’t gamble on your funding. Even a great project could fail to raise the money on a weak platform. You therefore need to work, and build your brand, with the best.


20 Sep 2019

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