# Linked Finance - Peer to Peer Lending



## MrEarl

Hi,

I was not entirely sure which forum to put this in, but it's probably investing ....

Does anyone know how these guys come up with their credit ratings for borrowers looking to raise funds ?

The reason I ask is because recently, I noticed they published a borrower at grade C (which from their scale, you might think was average), but when you looked at the financial information provided for the business there was absolutely no way the business could afford to repay the debt (it had a negative EBITDA and no mention of where improved financials were coming from, while the Current Ratio was also terrible - which was concerning, for a cash based business).

There was a question posted on their site about the financial results for this business, but it was never answered.  Very disappointing for a regulated entity (UK regulated, as I understand it).

Thank you.


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## losttheplot

A lot of discussion on boards.ie about the credit ratings. No one seems to be able to make sense of it. Most loans are filled quickly (some in seconds) due to auto bids. So it would seem most bidders don't ever see the financials.


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## arbitron

I invested with them a few years ago. The business we invested in was very sounds and we got all the money back with interest, but the communication from Linked Finance was very poor. For example, they ostensibly allowed withdrawals of repaid funds at any time, but when I tried to withdraw I was told it could only be done quarterly on specific dates - there was no warning of this change and the website for months afterwards still said you could withdraw any time. They were quite dismissive when I questioned it, and this was senior management replying. It's difficult to have confidence after that.


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## MrEarl

losttheplot said:


> ....Most loans are filled quickly (some in seconds) due to auto bids. So it would seem most bidders don't ever see the financials.



Actually that highlights part of the problem here.

The autobids are set up based on certain credit criteria provided by Linked Finance.  However, if Linked Finance's credit ratings cannot be trusted and relied upon, then those investing via the Linked Finance autobid sytem are potentially in big trouble !




arbitron said:


> .... They were quite dismissive when I questioned it, and this was senior management replying. It's difficult to have confidence after that.



That stinks of something bad.

I would have thought / hoped that with the FCA now regulating them, that they would have improved their standards, but based on what I've seen in recent days, Linked Finance cannot be relied upon from the investors / lenders point of view.

While we are Irish residents and transacting in Ireland, I wonder what the Financial Conduct Authority might say if we raised our concerns with them ?


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## MrEarl

Hello,

I am starting to see quite a few loans fall into arrears on Linked Finance and also, from reading Boards.ie it seems that I'm not alone.

A poor credit rating system to blame perhaps ?

Obviously, there is a risk with this form of lending, as with most other things and that is why we get paid a return, but I think the current Linked Finance pricing does not reflect the true risks associated with many of these loans and has been designed more to help draw in new borrowers (who clearly help Linked Finance generate fee income).


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## Leo

I've seen some of that too, and I only have small money in there. Their Q3 Loan Book Report claims a 0.76% default rate.

Ever since they changed from the bidding model, I stopped putting any more in there. With the current model, you would need to have auto-bids set up to get in on many of the loans. There's just no time to do any proper assessment of the numbers or business case before committing. 

I'd agree there are questions to be answered on the rating system also. Right now there is a firm formed 4 years ago as a freight/removals business claiming 30 years in operation as builders, the directors (I'm guessing husband and wife) are both listed as being in the 35-39 age group. They're looking for €100k and the loan has been rated at Grade B / 10.5%. There are other loans from long established businesses in more stable areas of business with much better financials getting a higher risk rating and attracting a 12.5% interest rate.


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## Merowig

I put a very small amount in Linked Finance. I would not recommend autobid and would do my own due diligence as far as possible. The rating system is for me not transparent enough and balance sheets provided are sometimes as well not the latest...

Some of the borrowers are raising their third or fourth loan on the platform but you are not told about this - this raises for me an eyebrow...


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## Leo

~40% of loans are completely subscribed by auto-bids of late, many more within minutes of launch. So if you're not on top of the notifications you will be limited in the loans you can support.


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## MrEarl

Hello Leo,

I am not at all surprised by that 40% statistic and would wager that it will grow further over the next few months. The P2P market is growing with more and more novice "investors" putting their cash in, then out of desperation to get involved in many of the loans they see filled in seconds, they set up too many autobids without considering the associated risks.



Leo said:


> ....Their Q3 Loan Book Report claims a 0.76% default rate.



Needless to say, much depends on what they define as "default".

In most Banks a loan is considered to be in default if it has missed three consecutive payments, but do Linked Finance define it the same way ?

Furthermore, how many borrowers on their loan book have started to run into problems, then simply raised a further loan on Linked Finance or another P2P, to deal with the problem (albeit, they may be kicking the can down the road and creating a bigger problem for the future) ?

Or how many borrowers have told Linked Finance after missing one payment that they cannot service the current repayment schedule so had their repayment schedule altered and never gone as far as three payments in arrears ?

If we were to take a simple sample of the amount of borrowers that are now starting to miss their scheduled loan repayments, I would say that in my own experience it's now running at about 3% - 4% of my loan portfolio (and I have avoided many of the medium to higher risk deals).



Leo said:


> ....Ever since they changed from the bidding model, I stopped putting any more in there. With the current model, you would need to have auto-bids set up to get in on many of the loans. There's just no time to do any proper assessment of the numbers or business case before committing.



I agree 100%.

The fact that Grid Finance see their loans priced by virtue of the bids submitted by the Borrowers, is far more equitable and appropriate system imho.



Leo said:


> ....I'd agree there are questions to be answered on the rating system also. Right now there is a firm formed 4 years ago as a freight/removals business claiming 30 years in operation as builders, the directors (I'm guessing husband and wife) are both listed as being in the 35-39 age group. They're looking for €100k and the loan has been rated at Grade B / 10.5%. There are other loans from long established businesses in more stable areas of business with much better financials getting a higher risk rating and attracting a 12.5% interest rate.



Some of this stuff defies belief !

One thing that I think we should all be doing is asking a hell of a lot more questions, on the Q&A section for each borrower.  

It is long past time that people risking their money started asking a few more questions before they put their cash at risk and also, it may illustrate to Linked Finance (and others) that people are not just willing to accept everything they are told without challenge.




.


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## MrEarl

Linked Finance are now trying to attract in personal retirement funds ...



https://blog.linkedfinance.com/linked-finance-pension-accounts

I do hope the Pension Trustees are not relying on Linked Finance's credit rating system, to decide on where funds get invested.  

The Risk -v- Return (net of fees) would give me reason for concern, given the specialist nature of this type of "investing", with no liquidity in this market should you wish to withdraw your pension funds during the term etc.


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## Merowig

Although I am lending via Linked Finance I would not want to see my pension fund getting involved in it... at least not at this stage yet.


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## Gordon Gekko

There’s a hint of “reaching for yield” about a lot of this stuff.

With interest rates at zero or below, suddenly an investor is lending to the Rwandan Government or The Wily E Coyote Burrito Bar just to get 7%...caveat emptor x 100 in my view.


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## MrEarl

Gordon said:
			
		

> There’s a hint of “reaching for yield” about a lot of this stuff.



Very true,

But that often also brings trouble !

(easy on the old burrito bars btw )


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## Steven Barrett

Angel investors know that they will lose their money most of the time but will get a big pay out from the few that do succeed. They are wealthy enough to be able to take the hit. 

Linked Finance type investments are allowing your joe soap to invest like an angel investor. When they are not because they are not financially independent and cannot afford to throw away money. And by only getting an interest rate return, you get limited upside for taking a lot of risk for rates that are not a whole lot better than what a bank would charge. 

Dealing with smaller companies, there is also going to be a lack of information as they tend to have limited number of staff, all of whom have a million and one things to do when dealing with a start up company. This is going to drive investors nuts as they can't get any information. 

If you want to make money, do it the old fashioned way and invest in solid companies that are going to be around in the long run. Wealth accumulation is a long term game and most of the time very unexciting. Investing in tiny companies who can't get the finance from a bank is more exciting and you can make money quicker. You can also lose it all just as quick. 




Steven
www.bluewaterfp.ie


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## Daddy Ireland

If all lending is by way of 'buyback guarantee' e.g Mintos  where is the danger in that.  You lose the interest but capital is secure. Is not the one risk only if Mintos go under.


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## Daddy Ireland

Also no currency risk if choosing to invest in Euro only.


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## MrEarl

Should we not be discussing Linked Finance here, and Mintos on their own discussion thread ? 

.


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## Daddy Ireland

Ok Mr Earl.  Does Linked Finance offer a Buyback Guarantee which appears available on other platforms.   If Linked Finance dont they are more risky than platforms that do e.g Mintos


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## MrEarl

Daddy Ireland said:


> Ok Mr Earl.  Does Linked Finance offer a Buyback Guarantee which appears available on other platforms.   If Linked Finance dont they are more risky than platforms that do e.g Mintos



No, they don't offer any buy back as far as I know.

Even if they did, you'd have to ask how strong Linked Finance are, and by extension, how strong the guarantee might be.  Something to think about when considering others' offering guarantees too, needless to say 

Personally, I've been losing faith in Linked Finance more and more over recent years - they are pricing their loans too cheap to reflect their true risk, they are failing to publish reasonably up to date financials, they don't appear to be taking account of borrowers who have raised debt (or are in the process of raising debt elsewhere etc.),  they continue to rely on very poor security for the loans advanced, and their autobid system is near dangerous for those who don't really understand the risks associated to lending to businesses.


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## RedOnion

MrEarl said:


> Something to think about when considering others' offering guarantees too, needless to say


Indeed. In the case of those with guarantee, it's not actually the platform that offers the guarantee, but the originator. I think Montis have already had one originator collapse while still with active loans, and another 3 or 4 collapsed after being removed.
You're talking about 'lenders' with tiny balance sheets writing loans at 200% interest rates (APR > 1,000%).  A few loans go bad, and that guarantee will be out the window. Meanwhile, you're getting 6% interest for the risk.


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## Leo

MrEarl said:


> they continue to rely on very poor security for the loans advanced, and their autobid system is near dangerous for those who don't really understand the risks associated to lending to businesses.



Agreed. I contacted them after the conservative auto-bid settings I had in place resulted in a bid on a company that purported to be in business for decades yet a quick director check showed a stream of company dissolutions and subsequent formations every couple of years with variations on the name. Most loans are filling via auto-bids at the moment, so I've started withdrawing the small money I have there.


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## MrEarl

Leo said:


> Agreed. I contacted them after the conservative auto-bid settings I had in place resulted in a bid on a company that purported to be in business for decades yet a quick director check showed a stream of company dissolutions and subsequent formations every couple of years with variations on the name. Most loans are filling via auto-bids at the moment, so I've started withdrawing the small money I have there.



Like you, I've begun to reduce my funds with Linked Finance and expect that I'll continue to do until all funds are out, unless things improve quickly. 

Watch out for the charges btw, if you withdraw more than four times a year


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## MrEarl

Hello,

I see that LF are now offering 5 year loans.

This makes me even more concerned, given:

How poor their arrears collection appears to be,
Their due diligence on borrowers has previously been,
The absence of any kind of tangible security for the loans.

Let the Buyer Beware isn't good enough here, and yet, the Central Bank is no where to be seen!!!


.


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## RedOnion

MrEarl said:


> . Yet, the Central Bank, is no where to be seen!!!


Unfortunately, not much CBI can do as the sector is currently completely unregulated here. They did issue a warning back in June 2014 which called out a lot of the concerns you have.
There was talk about bringing in legislation to regulate, but there's also EU level legislation being drafted, so nothing will happen fast. The dept of finance did publish a consultation paper last year, which again echoed what you're saying.


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## MrEarl

Hello, 

So our CB maneged to issue a warning six years ago, but have since done little more. That's shocking, when we talk about protecting consumers etc.


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## RedOnion

I agree, but there's nothing they can do. There's no legislation, so the CB would be 'sticking their nose in' if they did anything else. They have absolutely no powers to look at individual providers without legislation, unless that provider also performs regulated functions.

For clarity, my comments are in relation to the entire crowdfunding sector, and not any individual platform.


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## MrEarl

Hello, 

While I appreciate the point that you are making, the Central Bank, the ECB and the Irish Government (through the Dept of Finance etc), all engage regularly. 

If they had a desire to do something, it could have been done a long time ago.


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## MrEarl

Looks like Linked Finance are giving out payment holidays to anyone asking for one...

I've yet to see any mention of them agreeing part payments with any borrowers that I've lent to, and suspect that I never will.

I would also love to know how they are assessing borrowers for their new coronavirus loans, as I fear they may not be correctly assessed, or priced, for the true level of risk associated with them etc.

How Linked Finance manage the current situation with Borrowers, will go a long way towards determining their own future.


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## NoRegretsCoyote

MrEarl said:


> Hello,
> 
> While I appreciate the point that you are making, the Central Bank, the ECB and the Irish Government (through the Dept of Finance etc), all engage regularly.
> 
> If they had a desire to do something, it could have been done a long time ago.



This will be regulated eventually at EU level, and Irish legislation and supervisors will be implementing EU requirements, with some flexibility.

There is no point in Irish legislators acting too early, as they will inevitably have to adjust in due course. John Gormley tried to ban incandescent lightbulbs in 2008 in Ireland six months before they were going to be basically banned EU-wide, at which point Ireland would have to get in line. He eventually dropped the plan.

Back on topic, EU Commission said it was going to have a proposal for a Regulation for crowdfunding in October 2018 but nothing much since, I am not sure why.


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## MrEarl

Hello,

While not wanting to be rude, I am not going to accept that, sorry.

Linked Finance launched in early 2013. They later obtained UK Regulatory approval in early 2017, with lots of publicity about the fact that there was no option to get regulated by the Irish Central Bank.

Other crowd funding operations launched around the same time, or not long after Linked Finance.

It's now April 2020, seven years since Linked Finance launched and there is still no regulation for crowdfunding, here in Ireland. That's simply inexcusable and the Central Bank should not be let off the hook, for failing to regulate companies who are promoting "investments" to Irish consumers.

The UK Regulator managed to figure out how to put some regulations in place quite quickly, so in the absence of asking our lads to do some work, could they not even have managed a bit of the old "copy and paste"? The UK and Ireland does share the same language, so surely it wasn't that big a job for the lads at the CBI?

Once again, the Central Bank is failing to provide appropriate regulation and long term, its the members of the public who will pay the price for this.

So, what will happen then, no doubt the CBI will attempt to make excuses and try to deflect, while an ex senior CBI staff member goes around telling everyone how he / she had warned against this blah blah blah. Who knows that might even write a little book on it


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## Brendan Burgess

MrEarl said:


> It's now April 2020, seven years since Linked Finance launched and there is still no regulation for crowdfunding, here in Ireland. That's simply inexcusable and the Central Bank should not be let off the hook, for failing to regulate companies who are promoting "investments" to Irish consumers.



Hi Mr Earl

And should the Central Bank take responsibility for the poor behaviour of the companies which sold overseas property in Ireland? 

And should they take responsibility for the losses I have made betting with Paddy Power? 

If you think that the Central Bank should regulate these, then lobby the politicians. 

The Central Bank can't choose what it wants to regulate.  The politicians you elected make those choices.

Brendan


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## MrEarl

Brendan Burgess said:


> Hi Mr Earl
> 
> And should the Central Bank take responsibility for the poor behaviour of the companies which sold overseas property in Ireland?
> 
> And should they take responsibility for the losses I have made betting with Paddy Power?
> 
> If you think that the Central Bank should regulate these, then lobby the politicians.
> 
> The Central Bank can't choose what it wants to regulate.  The politicians you elected make those choices.
> 
> Brendan



Hello,

In short Mr Burgess, the regulator should be regulating the sale of anything that falls under the category of financial services being offered to Irish consumers, in my view.

Does that include the sale of foreign sale and leasebacks, maybe?

Does that include regulating gambling, absolutely not. That's not to say that halving shouldn't be regulated, or that Paddy Power might not need to be approved for provision of payment services or its debit card, perhaps.

As for contracting the CBI and our politicans, I have done and more than once, dating back a number of years. Unfortunitely, they just brushed me off with a little lip service, and a few carefully worded excuses.


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## Brendan Burgess

MrEarl said:


> In short Mr Burgess, the regulator should be regulating the sale of anything that falls under the category of financial services being offered to Irish consumers, in my view.



What you think that the Central Bank should be doing and what they are permitted and obliged to do by law are two different things. 

We can argue whether or not peer to peer lending should be regulated.

But you should not criticise the Central Bank for failing to do a job which they have no authority to do.

Brendan


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## MrEarl

Brendan Burgess said:


> What you think that the Central Bank should be doing and what they are permitted and obliged to do by law are two different things.
> 
> We can argue whether or not peer to peer lending should be regulated.
> 
> But you should not criticise the Central Bank for failing to do a job which they have no authority to do.
> 
> Brendan



Oh come on Mr Burgess, please don't tell me that you think it's that clear cut, that the CBI doesn't have any obligation to be pro-active, to be watching for potential risks to consumers and pushing for whatever relevant instruction is needed from the Dept of Finance etc.

When we entrust regulation on a third party, we expect them to be pro-active, not just give us a verse of monkey say, monkey do, don't we?  I know I certainly do.


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## Brendan Burgess

I expect the Central Bank to act within their powers and not outside their powers.  

However, if they see some shadow banking that they are concerned about, I would expect them to raise these issues with the Department of Finance, but that is all that they can do. 

Brendan


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## NoRegretsCoyote

@MrEarl 

You don't understand how this works:


Government proposes legislation;
Oireachtas votes on it;
Central Bank implements it.

In the absence of the first two steps the Central Bank can do very little.


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## Steven Barrett

Mr Earl

if you are not happy with Linked Finance not being regulated, why do you lend through it?

And Brendan and Coyote are correct re regulated. The CBI has very little power in this country. It is up to the politicians to write the legislation. 

Steven
www.bluewaterfp.ie


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## MrEarl

SBarrett said:


> Mr Earl
> 
> if you are not happy with Linked Finance not being regulated, why do you lend through it?



I'm not still lending through them, I stopped quite some time ago, but it takes a long time to get your money back out, once it's been lent.


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## The Oggster

New fees on your cash balance from 1st January

*



			Fees to apply to available cash balances from 1 January 2021
		
Click to expand...

*


> I need to inform you today about a change which will affect you as an investor from January 1st 2021. As you are no doubt aware, deposit interest rates across the Eurozone are at a historic low, which has led to the Banks imposing negative interest rates and charging their business account holders to hold cash on deposit. Over the last year, Linked Finance has absorbed these charges without passing these fees onto investors. Sadly however, the banks have increased these charges steadily in the last few months, and it has come to a point that we can no longer absorb these fees.
> 
> It is therefore with reluctance that from 1st January 2021, we will be levying a new Balance Fee on available cash deposits on the platform.
> 
> *What will change*
> 
> From 1st January 2021, any investor who:
> 
> a) has not invested in any loans in the past 3 months, or
> b) has an available cash balance in excess of €5,000 on the Linked Finance platform (regardless of bidding activity levels),
> 
> will be charged a monthly fee, equivalent to 1.25% per annum, of your available cash balance on the Linked Finance platform. Eligibility for the fee will be assessed on the 1st of each month, after which the fee will be calculated daily and then deducted from your account on the last calendar day of each month.
> 
> Any cash you have invested in a live loan will not accrue these charges.
> 
> You will be able to monitor this Balance Fee charge by looking at the Available Cash panel in your Linked Finance account.
> 
> Next steps
> 
> To avoid this charge, or significantly reduce the charge deducted, you should:
> 
> 
> Reduce the amount of cash deposits you have on the platform by making a withdrawal. You may make withdrawals free of charge until 31 December 2020. *After that date, you can make 1 free withdrawal over €250 per month.*
> Actively monitor the amount of available cash you have on the platform on a regular basis to ensure you don't keep more money on the platform than you need to.
> Review your autobid strategy to make sure that you don't miss out in opportunities to bid on new loans on the platform.


Hmmm, what's this? 1 free withdrawal over €250 per month. What about less than that? Doesn't mention it in the email. Had a look in the FAQs.

You can make one free withdrawal of over €250 per month. Withdrawals under €250 will be charged at €5 per withdrawal.  A minimum limit of €50 will be enforced for all withdrawals unless your total balance is less than €50.

Tha's a big change change to ther terms.

I logged on recently and had €25 in my cash balance. Current rule is that you can't withdraw less than €50. Also you can't top up by less than €50 so I topped up by €50 and then withdrew €75 immediately.

I'm still owed €99. If any payments start up again (unlikely) they'll charge me a fee on the cash balance and now have restricted free withdrawals to over €250. If I do start receiving payments I'll top up by €250 and withdraw it plus any payments.

I can see them going to the wall in all honestly.


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## arbitron

I found them poor from the beginning. I was an early lender, relatively small amounts, never had any problems with the businesses or any repayments.  Found it very difficult to deal with the peer lending company itself - they changed the rules a couple of times without any notice and I had to jump through hoops to withdraw money, e.g. I had to make a request by email between X date and Y date, no more than once a quarter, the amount had to be a minimum of Z and if it was below that I had to give them more notice, etc.  Inexplicably convoluted and seemed like they were very disorganised. They also made me feel at every turn that I was a bother to them and being awkward for wanting to withdraw my own cash under the T&Cs that I had signed up for.


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## Gordon Gekko

Did I read recently that Viking Splash Tours going under is a big issue for Linked Finance?

Sad news, and probably a big shock for anyone who has gone into this stuff as an alternative to cash deposits as it’s sometimes marketed (which is scandalous).


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## MrEarl

Hello Gordon,

Yes, you did read about Viking Splash Tours (Duk Tours).  I think there was a Creditors meeting scheduled for yesterday and assume that a Liquidator was appointed.

It's actually a sad loss, as I thought it was a great service, that entertained both tourists and locals alike - combining fun and a little education about Dublin City.

I believe that there were P2P loans there for an original amount of €300k, not sure how much that balance might have reduced, if at all.

While the debt to Viking Splash Tours is significant, it would obviously be underwritten by numerous lenders ("investors"), so in isolation, hopefully this won't be too significant a loss for any one party.

I assume that the Linked Finance debt was backed by way of Personal Guarantee(s), as that's there standard model, as I have it - but odds are that the PG is not backed with any collateral, so who knows what the recovery might ever be - or how long one may have to wait, to see any money recovered.

What I would really like to know from LinkedIn now, is what the split is across their loan book, under different industry sectors - as I've a feeling that they have significant exposure to the tourism, travel and hospitality sectors (all of which have been hit very badly, by the economic impact of Covid - 19).

Niall Dorrian and his Linked Finance business are really going to be under the spotlight now, in terms of how they manage the existing problem loans, and seek to advance new loans.


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## peemac

Gordon Gekko said:


> Did I read recently that Viking Splash Tours going under is a big issue for Linked Finance?
> 
> Sad news, and probably a big shock for anyone who has gone into this stuff as an alternative to cash deposits as it’s sometimes marketed (which is scandalous).


It was a typical hysterical indo article. "hundreds of peer to peer lenders on the hook if viking splash go down" 

They then quote the big €300,000 number but handily don't work it out as less than €600 average nor mention when the loan started. 

I do a small amount of lending on linked finance and haven't had any bad debts yet and getting about 8% return. 

I'm not one of the viking investors, but if I had a €500 hit I'd accept it as part of the risk.


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## Leo

MrEarl said:


> It's actually a sad loss, as I thought it was a great service, that entertained both tourists and locals alike - combining fun and a little education about Dublin City.



I expect to see the people behind this return with a similar service in the future. I read recently they were working on a new craft design with the company who modified the current DUKWs, and have separated that development from the Viking Splash entity being liquidated.


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## Jim Stafford

MrEarl said:


> I believe that there were P2P loans there for an original amount of €300k, not sure how much that balance might have reduced, if at all.


Linked Finance had reduced their exposure to €77,384 by the time the company went into liquidation.

The Company's statement of affairs showed inter-company debtors with a book value of €3.7 million but a Nil realisable value.  Based on the SOA, there will be no dividend to creditors. 

As Leo suggested above, the new design and manufacturing was set up in a separate company in the UK.

Jim Stafford


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## Powderfinger

I've just received the final payment on loans through LinkedFinance. Over the past three years I lent €5,500 and received (following charges) €555 in interest. Considering it was during a pandemic, I think it was a very healthy return. However, I am very tempted to leave it at that. Should I?


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## NotMyRealName

Very similar experience to yours .......lent 5k over 3 years ,multiple loans. Netted 1100 or so, in interest after charges. 1 unrecoverable bad debt ....approx 120 euro.


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## NotMyRealName

....Oops.....meant to add.... I've "left it at that" and closed my account.


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## Gordon Gekko

Powderfinger said:


> I've just received the final payment on loans through LinkedFinance. Over the past three years I lent €5,500 and received (following charges) €555 in interest. Considering it was during a pandemic, I think it was a very healthy return. However, I am very tempted to leave it at that. Should I?


Without knowing the exact timings, it’s impossible to run the numbers, but that sounds like a terrible return to me.

€185 per year on €5,500, so 3.3%, or 1.65% after tax.

And you’re lending money to companies who’ve been turned down by the pillar banks?


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## NoRegretsCoyote

Gordon Gekko said:


> €185 per year on €5,500, so 3.3%, or 1.65% after tax.


A net return of 1.65% with the risk of total capital wipeout!

A bit like the pickaxe makers during the Californian gold rush, I think LinkedFinance are the ones making the real money here.


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## jpd

Isn't that the lot of most intermediaries?

Do you have a better way for businesses to get finance other than through intermediaries who match savers and borrowers?

Also, the risk of total capital wipeout is quite low as long as you do not put all your eggs in one basket. The default rate is about 2%, the average lent by anyone to a loan is less than 500 euro or less, so total risk of wipeout is not as dramatic as you indicate (!)


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## Leo

NoRegretsCoyote said:


> A net return of 1.65% with the risk of total capital wipeout!
> 
> A bit like the pickaxe makers during the Californian gold rush, I think LinkedFinance are the ones making the real money here.


With Linked Finance you can re-invest the monthly repayments, so it's most likely that a lot less than €5.5k was put on the line in real terms.

If @Powderfinger only started 3 years ago, it's likely they still have loans repaying and that return increasing as most seem to be on 3 year terms.

I dabbled with Linked Finance for a few years before the auto-bid system meant you could no longer vet potentials in advance. Average interest rate on the 64 loans I chose was 11.64%.


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## Gordon Gekko

This all sounds like nonsense to me.

It’s like I’ve set-up Ocean Finance here in Ireland and I’m lending money out to basket cases and should be charging 20%.

Except I can target the most risk adverse group on the planet, cash depositors, and promise them something better than cash deposit rates.

And I keep the difference.

It’s lending to subprime companies in a world of QE etc.

Some proverbial Granny will be carried out someday.


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## jpd

Given that the reported loan default rate is currently around 2%, where does the label "basket cases" come from?

Admittedly the businesses are choosing to borrow from Linked Finance and not the banks, and presumably pay a higher interest rate, but that does not make them basket cases - more riskier, yes but not basket cases


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## DublinHead54

I don't think they are basket cases. A factor is that they are seeking loans that are probably too small for the pillar banks to make economic sense.


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## Leo

jpd said:


> Given that the reported loan default rate is currently around 2%, where does the label "basket cases" come from?


Agreed, I'm no longer a fan but the adjusted return rate is running at 7.47%


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## jpd

Dublinbay12 said:


> I don't think they are basket cases. A factor is that they are seeking loans that are probably too small for the pillar banks to make economic sense.


the average loan is now € 100,000 - surely the banks can not be disinterested in those?

I suspect that the banks require for more paperwork, scrutiny and time than Linked Finance


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## MrEarl

jpd said:


> I suspect that the banks require for more paperwork, scrutiny and time than Linked Finance



I think that's a fair comment,  and probably explains why there's some better quality borrowers on the platform.

However:

- you don't see their credit records

- you don't get a full picture of other borrowings, or repayment terms

- you don't see their full tax position,  to include details of taxes that have been "warehoused", and will have to be repaid

- the only financial info provided, is dated

- you don't see the financial profile of the party providing the unsecured personal guarantee,  or know what other guarantees they might have signed


When all is said and done,  you are relying on a personal guarantee to support each loan, when things go wrong, and there's no incentive for Linked Finance to put time and money into chasing defaulters.

Furthermore, guarantors have traditionally been slow to pay up (across all lending, not specially at LF), and typically negotiate very big discounts on the amount that they owe.

I've been in Linked Finance, as a lender, for a good few years, but I have been in exit mode, for over a year now. As my funds become available from repayments, I'm withdrawing them.

They got lucky, with the SBCI Guarantee, as it enabled them to look better than they really are... Imho.

While I like the concept of peer to peer lending, the lender is the one taking the risk, no one else, and the lender doesn't get enough in return.


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## jpd

MrEarl said:


> ...  the lender is the one taking the risk, no one else, and the lender doesn't get enough in return.


I think the risks are clearly stated and, obviously, some lenders are happy with the returns provided


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## MrEarl

jpd said:


> I think the risks are clearly stated and, obviously, some lenders are happy with the returns provided



I honestly don't think that most people fully understand it, tbh.

Then there's the core group of lenders, many of whom participated in an equity raise for Linked Finance in 2017. Are they lending on the same terms as the rest of us, or getting preference on which borrowers they lend to, while the rest of us are left to hope that we get lucky on an auto-bid?

From what I've seen of them,  they've had a fairly high turnover of staff, which concerns me.

It's also very odd how their average arrears are lower than any of the banks, who lend to SMEs.  However, that said,  most SMEs have been benefitting from state supports such as wage subsidy scheme and deferred tax, giving SMEs a notable boost to their cashflows. Having that cut off, and having to repay warehoused tax over the next couple of years, may well see a lot of SMEs come under pressure.


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## DublinHead54

jpd said:


> the average loan is now € 100,000 - surely the banks can not be disinterested in those?
> 
> I suspect that the banks require for more paperwork, scrutiny and time than Linked Finance



The below is from BOI website, so I think an average loan of 100k is not worth it for them given the amount of paperwork. Why do 10 loans of 100k when they can do 1 for 1m. There's probably also a paperwork for factor from Linked Finance

_Small and Medium enterprises are defined as businesses that employ fewer than 250 people and have an annual turnover not exceeding €50 million and/or an annual balance sheet total not exceeding €43 million._


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## MrEarl

The Banks are regulated, and must follow the likes of the SME Code / Consumer Protection Code - that places significant additional obligation on them, that isn't placed on the likes of Linked Finance. Thats one of the reasons why Banks take longer than non-bank lenders, to approve and draw loans. Sadly, there are also various other factors, including a certain amount of unnecessary admin.

Don't forget, Banks are responsible for protecting peoples deposits, which they lend out.... LF are not.


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## Peanuts20

MrEarl said:


> The Banks are regulated, and must follow the likes of the SME Code / Consumer Protection Code - that places significant additional obligation on them, that isn't placed on the likes of Linked Finance. Thats one of the reasons why Banks take longer than non-bank lenders, to approve and draw loans. Sadly, there are also various other factors, including a certain amount of unnecessary admin.
> 
> Don't forget, Banks are responsible for protecting peoples deposits, which they lend out.... LF are not.


That is changing. 








						Central Bank tightens up crowdfunding regulations
					

The Central Bank has tightened up the regulatory regime for Crowdfunding Service Providers under EU Regulation.




					www.rte.ie


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## MrEarl

Peanuts20 said:


> That is changing.



Its not, really... because they aren't banks, and don't offer savers protection under the deposit guarantee scheme, for example.

The introduction of any sort of regulation over crowd funding, has taken the Irish Central Bank almost a decade to roll out, and even now, will be little more than a few rules about marketing and selling.


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## jpd

This is a situation where "caveat emptor" really applies


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