Peer-to-peer (P2P), or marketplace lending, is a form of direct money lending to individuals and businesses that doesn’t involve a financial intermediary. Wholesale and retail investors invest money which is then lent to borrowers via a platform. It can offer competitive, personalised interest rates to borrowers with fast applications, and good returns to investors who have assessed and priced the risk.
In Australia, P2P loans have grown in popularity from borrowers requiring fast approvals and who might otherwise face tightened lending criteria through more traditional bank and non-bank institutions. At Levi Consulting, we provide second opinion services to P2P lenders and conduct extensive due diligence and negotiations with the borrower and the lender, including dispute resolution advisory services.
For a multitude of reasons, businesses may be attracted to the flexibility of the P2P lending process. Facilitated through an online exchange, this form of lending can often see fast funds available to businesses, on demand. And subject to the lending intermediary’s business model, the provision of security by the lender is not a precondition to securing a loan through this channel, although there is still an obligation to conduct enquiries into the creditworthiness of borrower.
On the investor side of the transaction, often there is the option to select the loans that they wish to invest in, or they may be matched with loans that fit certain specified criteria, such as interest rates and loan terms, secured or unsecured.
The regulation of P2P lending differs from bank and non-bank lenders, but the lending intermediaries are required to hold an Australian Financial Services Licence and an Australian credit licence. The operation of a P2P lending platform constitutes the operation of a managed investment scheme under the Corporations Act 2001 and other general and disclosure obligations under the Act also apply.
This regulatory approach aims to strike a balance between ensuring lenders can evidence their competence in providing P2P lending services, providing longer term protection for retail investors, and ensuring accessibility to the P2P lending market for borrowers.
Our expertise and experience
Levi Consulting has the expertise and industry connections to support P2P lenders. Our team conducts extensive due diligence and negotiations with borrowers and lenders, and also liaise with industry professionals in finance and law. This allows us to offer tailored advice regarding the prospects of loan recovery. Often, this results in the recovery of loans or at a minimum, the mitigation of interparty disputes.
We have acted on numerous transactions which involved disputes or potential disputes between borrowers and the P2P lender, assisting with resolution and financial recoveries. Our approach is minimally invasive but, when needed, we take an invasive approach to consulting borrowers who are in default or likely to default. This enables us to take a commercial approach to matters which are often time and cost sensitive.
Through our experience across many matters, we’ve seen that the following themes can lead to problematic loans:
- Loan delinquencies often arise when the mental health and personal life of the business owner is negatively impacted or another change in lifestyle changes spending habits. Compliance with the loan repayments is often compromised by these changes and early intervention, discipline and counselling from an external party can help circumvent these issues.
- High interest rates on loans can lead to distress however these rates are largely inevitable in P2P lending given the short loan terms and business model of the lenders.
- Macroeconomic factors, such as uncontrollable events that can significantly disrupt the business of the borrower, from policy changes and natural disasters to lockdowns and economic slowdowns. These unforeseen events can hit business cash flow and impair the ability to make loan repayments.
Loan distress warning signs
In our consulting work with P2P distressed loans and disputes we’ve seen many changes in a lender’s personal and business life lead to challenges. Family law issues and changes in personal relationships can impact not only a lender’s ability to directly repay, but it often means a loss of focus on the business. In addition, diversification, a new purchase, or a sideline issue can similarly divert focus, and funds to other purposes.
In some instances, we’ve been appointed as a receiver or administrator to take possession and secure assets of a small business to repay a lender, and in others, we’ve been appointed by a P2P lender to liaise with a competitor voluntary administrator to achieve the best outcome for the lender, without the appointment of a receiver. On occasion, we’ve been retained to oversee the outcomes achieved by an administrator, and concurrently arrange a settlement, avoiding a formal appointment by the lender.
Over time, our expertise in this area is becoming known, as an active participant in proceedings, but also to drive solutions. This can be evidenced through a role we took on recently where we were appointed as receiver to a parts and distribution business, on behalf of the lender, after the business appointed a voluntary administrator. We determined within 24 hours that the costs of receivership would, in this case, exceed the benefit and resigned the receivership. We continued to work with the administrator to mitigate the P2P lender’s exposure.
In another appointment to a fashion retailer, our network and reputation allowed us to arrange for our clients’ first ranking security to be purchased by the voluntary administrator over the course of a weekend.
Our years of experience in servicing the P2P lending market has seen us appointed to work on projects of all sizes, on loans ranging from $100,000 to more than $100 million. Levi Consulting’s disciplined yet flexible approach sees the team bring a sharp, outcome-driven approach to all situations. We value building long-term relationships with our clients and are more than willing to act as an internal resource for advice and mentorship.
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