Asked on 25 Jun 2019
Why isn't there a requirement for companies to put up collateral for P2P loans? Such that in a default at least the collateral can help investors recover some investment back.
P2P lending intentions are to serve those that are underbanked. Making collateral compulsory will make access to loan with higher barrier to entry. Businesses with intention to expand yet no collateral will be undermined.
Of course, loans with collateral is appreciated. Instead, interest is reduced.
Thus p2p platform has to use other matrixes to evaluate companies without collateral. What services are given to prevent companies to default? What to do if companies were to default?.
Investors need to understand that p2p lending is an unsecured loan. How do we diversify risk? How do we better support these companies and who do you want to help?
Ask yourself more questions to better understand p2p lending and better take advantage of the platform
Anything that has collateral involved actually reduces the interest rates of the loan itself.
If you take a formal qualification test e.g. m9, they actually describe bonds to be unsecured investments defined by credit rating only. Technically they're not entitled to put up any form of collateral either. That's why a bond can give you much higher interest than a mortgage loan, for example.
Obviously, you'd want to pick a company which you can still sue and challenge for the monies, but it would still follow a hierarchy of debt - bonds first, preferred shares later, etc. So that's the risks you take for the absurdly high returns you get.
Hey Gabriel. :)