Advantages/Disadvantages of a Platform's Business Model.

I think of the pay interest up front model and the pawn model you describe as fairly similar. It's just making the initial LTV lower than the headline rate.

eg. Lendy might lend £700k against a property of £1m for 12 months nominally on a PBL. Say Lendy are charging 20% the borrower receives (700/1.20)=£583k*. The remaining £117k is split between Lendy (their gross profit) and an account which investors get paid monthly interest from. At the start the LTV is 58.3% but by the end of term the LTV has risen to 70%. This model might give investors false confidence because they receive monthly payments on time so they might assume the loan is performing but it could in fact be in trouble.

Funding Secure's model which are theoretically 6 month loans (I'm in some that have gone on for >12 months with no whisper of default just promised renewal or repayment 'soon'). This means an initial headline LTV of 70% rises over the 6 months - using 20% interest again it could be 77% by the end of the term.

If you can suspend your disbelief and assume all valuations were completely accurate, then a Lendy bridging loan with interest held on account and x% LTV is less risky than a FS loan at the same LTV as the quoted Lendy LTV is at maturity while the FS LTV is at origination. I take this into account and tend not to lend on any of the higher LTV loans on FS unless I consider the borrower to be rock solid and the valuation on the cautious side.

Edit: *I made a mistake here - I guess it should actually be say (700/1.12) = £625 for a 12% 12 month loan. Lendy's gross profit on the loan (excluding any late repayment/default fees) is earned at drawdown so it's just really the retained interest for investors that the LTV is reduced by.

As a total newbie, one way of making sense of different approaches has been to plot along two tendencies.

One is to shoot for volume, low reliability, passive investors, diversification within the platform -- a numbers game.

The other is to be more actively managerial, concerned with reputation, steady growth with the right infrastructure, taking what you could describe as a more qualitative approach.

The latter are probably more robust but have a harder route to scale, the former are more profitable in the short term but liable to blow away in any financial headwind.

No doubt this schema is super-simplistic , but yo it's where i'm at. 

I believe everyone, well certainly myself, felt initially that whilst there was a risk with P2P the platforms themselves would not treat lender's funds any different as to if it was themselves lending their own money. How wrong could I be!!!

As the 'opportunities' being offered vary enormously then it's vital IMO that any platform has an adaptable business model. There have been many discussions regarding highly optimistic valuations or indeed spurious valuations and if/when the loan fails, it's the lender's that take the hit.

Often the platform has conveniently chosen to ignore the dubious past record of a borrower claiming it was immaterial. This has been proven time and time again to be a highly relevant factor.

Then there is the question of ongoing monitoring - very little takes place and there is an excellent example being discussed on the forum of a failure to carry out monitoring whilst still passing funds to the borrower.

I cannot believe that some platforms are that incompetent that they are not aware of some or all of the above points. They choose though to hide behind the 'we're just introducers' and you must do your own DD.

I often carry out DD on the 'opportunities' being offered and am frankly horrified at what comes out of the woodwork. Apart from the time element to carry out meaningful DD, my conclusion is that the platform(s) concerned are fully aware of my discoveries but choose to omit them.

So rather than chase down those 12-13% loans I've now lowered my sights and prefer a reduced return without all the associated default drama. Oops, platforms prefer to delay calling any loan a default as it will affect their statistics - they prefer the overdue term irrespective as to how overdue repayment is.