Q: When is Asset Backed Lending ...Not Asset Backed Lending?

OK, as an example:-



Loan is for £400,000



P2P Lender lists various Assets as security when advertising the Loan for investment. These Assets Values total£500,000, which includes the Borrowers £1M house, but Lenders only benefit from £200,000 of this on a Second Charge. So there is £100,000 "excess" in case of Default, which is attractive to Lenders as low/no risk. (Assets £500K - Loan £400K)



In due course P2P Lender informs Lenders that unbeknown to them the Borrower has sold the house to settle other debts. Agreement paperwork didn't exist to stop the Borrower from doing this.



So, now Lenders have a situation where the Borrower has Defaulted and there is only £300,000 of Assets security backing a £400,000 Loan. The £200,000 Second Charge has "disappeared".



The Asset Values were "inflated" making the Loan appear attractive as Low Risk because of the perceived Assets being worth £100,000 more than the Loan, providing good "cover" in case of Default.



Except it turns out the Assets are worth £100,000 less than the Loan.



I don't know the technical terms of Lending and possibly not explained it the best, but I imagine you get the gist.

Try Assetz #41 , Tricky!!

When is Asset Backed Lending ...Not Asset Backed Lending?

On the rare occasion Financial Crisis offer asset security on a non property loan.

Just to confirm AC #41 had an un-supported PG  ... which are generally worthless and should not be considered as security by lenders.


I fear the OP was referring to this loan, but had lent on the loan without understanding the security available was limited to

 - First fixed and floating charge over the borrower
 - Cross guarantees from all related companies
 - Personal guarantee from an individual

In reverse order, the PG was as I have noted unsupported  (as has historically been the case with this particular loan introducer Lud**** Fin****** on most of their TC loans), and can never be relied upon to have a value when needed - an assets and liabilities statement is meaningless as the assets can be moved out of reach before the crunch comes.  The cross guarantees from related companies was always of dubious value, but especially once one such company had a CCJ plus winding up petition against it in April last year as discussed on this forum at the time.  So the only asset security here is the fixed and floating charge which would need us to liquidate the company to retrieve any value.  To say this loan had insuffceint asset security is wrong - its up to each lender to judge whether the fixed and floating charge is suffceint for the level of risk that lender is comfortable with.


I sold out when the group company hit the rocks last year, but I only ever had a small position in the loan because of what I regarded as weak security from the outset. 

Ultimately if an unsupported PG has to be called on without the underlying cash available, in all probability the borrower will be forced into bankruptcy, and the dividend received by us depends on how many other unsupported PG have been granted as what assets there are will be shared by all unsecured creditors AFTER HMRC etc have been paid their due.

I think it is #41, and the issue OP has is the following tagline:
``At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan.''

Presumably, anyway.