jw01
Posts: 62 
Likes: 21
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SM
Feb 20, 2017 14:45:47 GMT
Post by jw01 on Feb 20, 2017 14:45:47 GMT
A naive question.
I have never used the SM and have always aimed to hold to term.
But I see people selling shortly before the end of a loan and I do not understand why. If a loan has gone that far and interest has been paid, isn't it more likely to complete successfully?
Can someone please explain the rationale?
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SteveT
Member of DD Central
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SM
Feb 20, 2017 15:12:09 GMT
via mobile
Post by SteveT on Feb 20, 2017 15:12:09 GMT
Which platform? If you're talking about the likes of property loans on FC or SS, interest during the original term of the loans is paid from funds retained by the platform at draw-down. It's typically only at the end of the loan term that it becomes clear whether borrowers are in a position to repay the sum borrowed; if they're not, there's the likelihood of an extended recovery period without further monthly interest.
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elliotn
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Post by elliotn on Feb 20, 2017 15:24:58 GMT
Typically trying to avoid any redemption problems but depends on platform ie FS lock you in 30 days to go, MT/Coll lenders might be more happy to hold because of the clear-cut renewal and timely updates allowing exit or renewal, also chance of default interest on MT for extensions.
SS liquidity has until now been traded more as a fixed income exchange although SM purchases will require cleared funds from March and SS will only cover non-retained interest for 90 days so this may lead to earlier exits.
SS/Coll and typically AC dfl's have interest retained within the loan amount so project viability might only be tested with exit at term.
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elliotn
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Post by elliotn on Feb 20, 2017 15:42:41 GMT
SME loans on abl/ac that pay from monthly revenues would show greater viability with a timely repayment history although still weigh up likelihood of any final bullet payment from their exit plan.
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elliotn
Member of DD Central
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Post by elliotn on Feb 20, 2017 15:45:30 GMT
Diversification - yoiu may wish to release funds for a new loan and de-risk borrower/asset concentration or simply move some money out.
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ben
Posts: 2,020
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SM
Feb 20, 2017 18:51:12 GMT
Post by ben on Feb 20, 2017 18:51:12 GMT
I can see why people want to sell out of a loan to reduce the risk of default, I can not understand why with the exception of FS (as can be tax advantages) someone would want to buy a loan with only a month or two to go.
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star dust
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SM
Feb 20, 2017 20:07:07 GMT
Post by star dust on Feb 20, 2017 20:07:07 GMT
I can see why people want to sell out of a loan to reduce the risk of default, I can not understand why with the exception of FS (as can be tax advantages) someone would want to buy a loan with only a month or two to go. I've quite often bought loan parts that are about to be repaid, where I'm pretty sure there is enough information to support the reality of this actually happening in a reasonable timeframe. Primary reason for doing this for me is to temporarily stash some cash for whatever reason. In the days when SS rolled up the interest on their Boat loans I quite liked that I was going to receive the interest sooner rather than later, but nowadays I'm only lending on platforms/loans where the interest is paid monthly, so from that aspect it doesn't make much difference to me.
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