Lending Loop and Private Debt Investments

Has anyone tried Lending Loop (I believe only available in Canada)? I just signed up and put a couple thousand in it and have purchased some notes. There are some deals on there that seem good but almost too good to be true. For example, one firm currently seeking funding has $3 mil in sales, no debt, and $3 mil in assets but are paying over 14% on a medium-term loan. Surely they could do better at a bank?

There’s also some private equity firms based in Canada that you can lend to and they pay really high interest. Some as low as 7% for a 1 year loan, and some as high as 12%. Again, their cash flow and other financials seem impressive, I am just concerned as to why they are seeking these high interest rate loans when banks are eager to lend to good cash-flowing companies. Anyone have any thoughts or experiences?

On what is the company paying 14% if it has no debt ?? Oh got it. It currently has no debt and is looking to raise money @ 14%.

But yeah most probably something is wrong.

That’s a big BS for the revenues generated. What are the assets ? The money most likely is to refinance equity as I can’t believe that they would need to invest more. The return on assets must be a catastrophy, hence the 14%.

How profitable is the firm ? Is it generating any CF ?

I don’t know why rates are so high for those companies, but if they can’t secure cheaper financing, something in their business must be preventing them from doing so.

As for buying Lending Loop debt as an investment, you should be wary of how the obligation you purchased is structured. Most likely, the debt is issued by Lending Loop itself, and is just contingent on Lending Loop receiving payments from debtors. If Lending Loop doesn’t get paid, you don’t get paid. However, if Lending Loop gets paid but goes bankrupt for other reasons, you might still not get paid.

This is how Lending Club and other US firms are set up. Your principal, in other words, is subject to credit risk of both the intermediary and the end debtor.

I get mail offers CONSTANTLY from Lending Club and all of these other sub prime personal loan lenders that are popping up. Most of these are HQ’d out west. My credit is superb so I do not understand why they are sending me them. Just hoping I need a large sum of cash for something? American Express also did this to me as well though so maybe it’s part of a greater trend in credit based lending.

Update:

I currently have 3 notes in my portfolio and have received my first repayment from each company. Since I opened my account, there have been some really interesting companies pop up on the website seeking funding. If I had more cash, I would definitely be investing more. In fact, I was planning on maxing out my TFSA this year (or trying to at least) but I will most likely allocate some of these funds to more notes. That being said, these investments in Lending Loop are not tax efficient (currently the account in my personal name; interest income is 100% taxable) but I estimate that the after-tax risk-adjusted return through these loans are higher than what I can realistically make in stocks right now (key word here being " risk-adjusted").

Each company has a personal guarantee and security held against the loan. In the even of default, Lending Loop has procedures in place to attempt to collect what is owed to lenders and do all of the work involved on behalf of the lender. They told me their default rate is averaging around 3%. I am confident my portfolio will have a much lower rate as I am very selective in who I loan to.

My weighted-average yield right now is 14.5%, Lending Loop takes a 1.5% cut, netting me 13%. As I get more repayments, I will re-allocate this cash to lower-risk loans which will eventually bring down my average net yield but I would like to be at around 10%.

Overall I like having this diversification and think that these are good investments for me personally, not necessarily for everyone of course.

Anyways, just wanted to provide a brief update for those interested.

thanks for the update. so as ohai was saying who owns the debt?

I suspect you are under estimating your risk

The lender is the debt owner. Lending Loop is basically the middleman or broker. They are issuing the securities (ie the notes) and are registered through IIROC, just like an IA firm (Nesbitt Burns, Dominion Securities, Waterhouse, etc)

A quick google search shows this is probably incorrect. You may want to do some more due dilligence.

Ok, so raw raw second quote clears that up. It’s material because, as stated above, you have credit risk of two small companies to think about. Hopefully, the notes will still be profitable overall, but it is something to be aware about.

Also, keep in mind that we are in a bull market, and money keeps flowing into these little companies. If/when a downturn occurs, expect that these will be the first to go.

Several Fintech firms failed or faltered in 1Q16 because the capital markets froze for a few months. That wasn’t even a real crisis or stress event. Like Ohai said, want to be aware of this dynamic. Especially since these firms often have terrible liquidity given their reliance on funding to operate.