# Linked Finance



## Firefly (27 May 2014)

Hi,

Anyone here using www.linkedfinance.com ? Crowd funding for SMEs. Looks interesting and the interest rates are quite attractive notwithstanding the levels of risk.

Firefly


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## Joe_90 (27 May 2014)

Interesting I came across these guys last week.

You apply to lend to businesses at a rate say 9-10%.  Linked finance charge you 1.2% for admin and charge the borrower 2.5%.

They claim there have had not defaults so far.  I would imagine a 15% default rate would be more appropriate.

They have some serious players on board but rather surprisingly they are in arrears with the CRO.



Interest is taxable at your marginal rate.


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## Jim2007 (27 May 2014)

Firefly said:


> Hi,
> 
> Anyone here using www.linkedfinance.com ? Crowd funding for SMEs. Looks interesting and the interest rates are quite attractive notwithstanding the levels of risk.
> 
> Firefly



If you want to do it as a philosophy that is fine, but not as an investment.  To start with SME have a very high failure rate and secondly 5% is not that good.  

By contrast, you buy a share in certain under valued US MNC today, the dividend rate is about 5% and if you then add in capital appreciation over time you are probably heading for 8% - 12% over say the next 5 to 8 years.  They are a lot better odds than investing in SMEs.


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## Firefly (28 May 2014)

Jim2007 said:


> If you want to do it as a philosophy that is fine, but not as an investment.  To start with SME have a very high failure rate and secondly 5% is not that good.
> 
> By contrast, you buy a share in certain under valued US MNC today, the dividend rate is about 5% and if you then add in capital appreciation over time you are probably heading for 8% - 12% over say the next 5 to 8 years.  They are a lot better odds than investing in SMEs.



I think you're right. I was actually going to invest under 1,000 euro in a well-known Cafe in Cork (they were looking for 26k to finance a refurb following a flood). Simply because I actually go there most Saturdays and the interest would have paid for my coffee!! 

Firefly.


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## paddytt (20 Nov 2014)

Hi

anyone had any more recent experience with Linked Finance?  The UK equivalent Funding Circle is apparantly doing well and loans can be sold more or less immediately, so funds are relatively liquid.

thanks


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## MrEarl (21 Nov 2014)

Hello,

I have looked briefly at both LinkedIn and other similar opportunities but quickly moved on, because:

1.  These funding schemes are not regulated.  The Central Bank specifically call this out, notwithstanding the fact that things may change in the future.

2.  I see absolutely no evidence of a "grey market" to sell on the debt, in the event that you "loan" funds but subsequently need to get your cash back.

Ultimately, Ireland is a much smaller place than the UK so the opportunity to sell on your "investment" might not be freely available.  As for the lack of regulation, that just adds further concern (for now).... 

Questions in my mind include how things may go, if a loan was not being repaid to terms for example or how a loan may be dealt with , if you put funds towards a debt via one of these providers, for tax purposes.

A day may well come when these lending schemes are regulated and indeed, may even obtain funds from the recently established Strategic _Banking_ Corporation of _Ireland_ (_SCBI_) but for now, I'm staying well clear.

I suppose in conclusion, it's a terrible shame that we now have these potential funders in the market, but our Central Bank and legal system is letting us down, by not dealing with the obvious concerns from the outset.


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## Brendan Burgess (21 Nov 2014)

Hi Mr Earl

The Central Bank is not letting us down.  It only regulates what the law tells it to regulate. It can't start regulating things it is not legally entitled to regulate. 

This sort of lending is very small scale and risky. It would be totally inappropriate for any government body to spend the huge amounts of money to set up a bureaucracy to regulate them. If you want to gamble your money lending to SMEs, go right ahead. But don't ask me for more taxes to regulate it.


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## MrEarl (21 Nov 2014)

Brendan Burgess said:


> Hi Mr Earl
> 
> The Central Bank is not letting us down.  It only regulates what the law tells it to regulate. It can't start regulating things it is not legally entitled to regulate.
> 
> This sort of lending is very small scale and risky. It would be totally inappropriate for any government body to spend the huge amounts of money to set up a bureaucracy to regulate them. If you want to gamble your money lending to SMEs, go right ahead. But don't ask me for more taxes to regulate it.




Hello Mr. Burgess,

I see it very differently.  

In my view the Central Bank (in its capacity as regulator) is there to help protect the population.  If it requires additional powers before it can act, then it should be proactively requesting these and not taking no for an answer without good explanation and all in the public domain.  If this has been happening, I have not seen it but would appreciate some evidence of same (and will eat humble pie if proven wrong !).

Your point about having taxes spent on the regulation of such funds is not without merrit, however I would argue that it is money well spent if it prevents the (potential) risk of significant financial loss, for members of our population.  In some ways, perhaps similar to paying for an insurance policy I would never have to call upon.

We can all refer to historic issues regarding the lack of proper regulation from years past and the consequences of same.  Ideally, we should not be in a situation where either the absence of regulation or failure to regulate correctly would have a negative impact on us again.

On a final point, I would also respectfully suggest that while I think you are correct that this sort of lending is small scale... it is clearly on the increase, otherwise we would not see competitors setting up and entering the market.  Also, the question must be asked, how much money would have to be lost and how many people / businesses would have to suffer, to justify the cost of regulating the sector ?


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## 44brendan (21 Nov 2014)

It is true that currently there is no crowd funding scheme regulated in Ireland. However under EU law it is possible to apply for and obtain UK regulation which is specific to crowd funding. The actual concept is a very good one and in my view there are substantial market opportunities for crowd funding which to some extent can cut out the banks and operate as a direct link between investors and borrowers. The main risks are that borrowings are unsecured and you are reliant on proper appraisal methodology being applied by the crowd funding organisation. While such "investments" are of higher risk than bank/PO deposits there is a certain element of altruism and satisfaction in that your investment is being used to assist a known SME business. Risk can be minimised by diversifying your investment amongst a number of SME's. I really like the concept and hope that it succeeds and grows. It does offer an alternative to bank funding and perhaps in time will be a genuine competitor to a banking system that has consistently failed to offer a consistent professional service to investors and borrowers.


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## Gerry Canning (21 Nov 2014)

Mr Earl. 

I agree with Mr Burgess.
We do not need more regulation.

In regard to Central Bank (protecting us?)
It would be more than a little naiive to believe that our Central Bank would actually impose regulation/protection any better on (crowd funding) than they have done on General Banking !

I think the threads are clear , this is an unregulated gamble , and strangely that may be no bad thing .
I do believe in {buyer beware} .
I need to re-establish , can I afford to trust Central Bank.


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