How do you analyse a loan?

PF, PF, PF.  Security, security, security. Everything else is jam. 

If you are relying on security then the loan is most likely already in deep trouble & would have been better avoided altogether.

My investment approach, across all platforms that I lend through, is to apply some common sense rules to every proposition; Does the SME borrower have a solid business plan, proven track record, offering that is easy to understand, likely to be successful, good reason to apply for funding etc - most get rejected at this first test & only then do I ask does the rate being proposed reflect the inherent risk of the project, more fail this test, so having rejected probably 90% of the opportunities offered I will look at bit harder at what is left; here security has it's first assessment but it still doesn't form a massive part of the final decision. Obviously pure property/land loans/SPV's need for the security to stand up to scrutiny but it is far more important that the project succeeds as planned/proposed.

I work on the basis that there will be far more lending opportunities than I have available funds so to be ruthless at this initial stage & throw out plenty of good along with the bad is not a problem & well worth the effort - any future default is best avoided at this stage, even if that means losing some solid security backed loans at the same time. In reality any security is often far less liquid, difficult to locate, surprising less than the valuation & very often eaten away by lawyers/receivers/other priority creditors than ever envisaged at the outset, so has to be seen as a very last recovery resort.

Of course it's always each to their own but I would question whether to put all your eggs in one (property based) P2P basket was the best approach?; I prefer to diversify across platforms & assets, so even when one sector or platform offers poor value then I have better options elsewhere. Would you really not consider lending against say gold pawn via Col or MT? or aircraft on Abl?

With SME lending there will always be some defaults but as long as they are kept below an acceptable level, so as to maintain the overall return, they offer far more variety & diversification potential than just property IMHO.

I would not say that I am that experienced in this game. I mostly now do secured lending. My DD is fairly cursory , dont like 2nd charges or anything that puts me behind others or gut feeling that this is a bad scene. But mainly I go for diversity and accept any inconvenience of having to wait longer for my return. I know that you should not but I give the benefit of the doubt to the platform that put the loan up. If I do badly out of investments from a platform (and I have in p2p and other areas) then my future investment with them declines. Generally I take my hat off to the quality of some of the loan analysis that people do on these forums. I could not do it.

The more time I spend in P2P, I think it's really down to 4 things, in roughly descending order of importance.

a) Diversification, across loans (and platforms, to a lesser extent). Spread your investment thinly. Of course, sometimes I take a chance in getting a (somewhat) larger sum invested, rather than have dead funds sitting about, but always with a view to selling down as soon as practicable to a more trivial level for any particular loan. After being burnt a little in the early days, my own rule of thumb now is:- not much more than £100 in any unsecured loan, and not much more than £500 in any secured loan. For reference, these would equate to around a 20th of 1% and a 5th of 1% respectively of my total P2P investments. [SS is a special case, where I am happy to go many times this, at least during the initial life of (some of) the secured, interest paid up-front, provision-fund-backed loans] 

b) LTV. Understand it, particularly for 2nd charges and tranches. Figure out your comfort level and try to stick to it. If you must break your own rule, only do it with a trivial amount of investment. There will always be a more attractive loan along soon, and a couple of days lost interest is negligible compared to a loss in an over-invested loan that subsequently goes south...
I'm happy to share my LTV calculator docs.google.com/spreadsheets/d/1poGF5j1MLNd-QV9zB4rhNuOuisZI5RVYjjqBFRjHkt0/edit?usp=sharing

c) If possible, try to sell-out completely, say 30 days, before the end of term. Some platforms actively encourage this with a tax break!

d) I don't get too hung up on doing my own DD. Life's too short, time is money, and the initial proffered info is usually rosy/vague enough for most secured loans to pass muster in any case. But, keep an eagle-eye on the forum for subsequent nasties that others may discover down the line... If in doubt, sell out early.


General advice. Stay disciplined, get organised with spreadsheets. Never get "emotionally attached" to a loan, and...

Focus on minimising your losses, and the profits will look after themselves.