Post by masquedefer on Aug 4, 2014 13:03:51 GMT
In the hoping of reducing the number my future defaults and so hopefully improving on the average investment return, I am trying to put together a set of investment selection criteria. No doubt seasoned P2B investors will have their own methods for avoiding investing in likely defaulters. I set out below my current criteria. Any additional suggestions would be most gratefully received (Presumably there is no difficulty in investors who carry DD checks on loan requests pooling such knowledge amongst themselves - thus leaving the more riskier loans to be filled by AQ investors).
Criteria and reason
Have been in business for at least 5 years (= track record/ability to stay in business).
Turnover > £500k (= likely not a one man band, employees can help continue the business in case of illness).
ROCE > 10% (= if you can't make at least 10% return on capital employed, then you shouldn't be in business).
Current assets> 80% of current debts (= Ability to manage cash flows and pay debts).
Shareholder funds > 25% of Total assets (= personal commitment of borrower to use his own money = confident in his/her business model).
Net Borrowings < Shareholder funds (= Borrowing is under control).
Non-excessive dividend withdrawals/steady growth in Shareholder funds (= Owner is committed to reinvesting in and growing his/her business).
The need for more loan capital is for a purpose directly related to business growth (= Don't lend to businesses who can't self-finance their ordinary capital replacement requirements. Did they not set up a sinking fund with their depreciation allowances?)
Use Google Street view to look at the business premises (= Some business addresses are poorly maintained residential properties, which does not inspire confidence).
I suppose the above criteria is too reliant on the financial information provided via FC. But if one is sifting manually through 10 or more loans per day, whatever criteria is used needs to be fairly fast and simple to use.
Although if there was a bot out there that I could buy to do this legwork, then I would be most interested.
Criteria and reason
Have been in business for at least 5 years (= track record/ability to stay in business).
Turnover > £500k (= likely not a one man band, employees can help continue the business in case of illness).
ROCE > 10% (= if you can't make at least 10% return on capital employed, then you shouldn't be in business).
Current assets> 80% of current debts (= Ability to manage cash flows and pay debts).
Shareholder funds > 25% of Total assets (= personal commitment of borrower to use his own money = confident in his/her business model).
Net Borrowings < Shareholder funds (= Borrowing is under control).
Non-excessive dividend withdrawals/steady growth in Shareholder funds (= Owner is committed to reinvesting in and growing his/her business).
The need for more loan capital is for a purpose directly related to business growth (= Don't lend to businesses who can't self-finance their ordinary capital replacement requirements. Did they not set up a sinking fund with their depreciation allowances?)
Use Google Street view to look at the business premises (= Some business addresses are poorly maintained residential properties, which does not inspire confidence).
I suppose the above criteria is too reliant on the financial information provided via FC. But if one is sifting manually through 10 or more loans per day, whatever criteria is used needs to be fairly fast and simple to use.
Although if there was a bot out there that I could buy to do this legwork, then I would be most interested.
