Peer-to-Peer (P2P) lending, also known as lending marketplaces, has become all the rage over the past couple of years. Even in the area of commercial real estate where the stakes are much higher, P2P popularity has soared. Platforms designed for CRE are able to facilitate lending deals for anywhere between $100,000 and $100 million.
Are you a prospective lender who’s thinking about stepping into P2P? If so, here are some ways that lending marketplaces can benefit you:
1. Lending marketplaces eliminate the middlemen
The biggest benefit of P2P lending is that it cuts out banks and other financial institutions who’ve acted as middlemen in the lending process. While P2P lending has gained a reputation for being risky among some circles, the lack of a financial intermediary allows for lenders to gain returns higher than they would through investing in CDs at the bank. In this way, the reward from lending through the marketplace typically outweighs the risks.
2. Using lending marketplaces give you the chance to do your research
As a smart lender, you don’t want to give your money to just anyone. After all, P2P lending is an investment, not a game at the casino. Fortunately, the lending marketplace enables lenders to do their homework on prospective clients. You’re able to learn more about who you’re lending money to, what you’re financing, and if the borrower has a history of paying his or her debts. This is especially important in the field of CRE, where one’s reputation and personal connections matter.
3. Lenders have ways of protecting their assets
A lot of the criticism that lending marketplaces receive comes from misunderstanding and lack of knowledge. In many ways, P2P lending isn’t any less safe than other forms of investing. As the lender, you have complete control over how you want to construct your lender portfolio. Obviously, the higher the risk you take, the more lucrative your return will be.
However, you and your borrower can agree on having a secured or unsecured loan. Due to the expensive nature of CRE, many investors using the lending marketplace often require borrowers to put up some form of collateral in the event of a financial collapse.
4. Lending marketplaces promote good investment strategies
Like other forms of investing, P2P lenders are encouraged to build a diverse lending portfolio that invests in a number of different areas. Since the interest earned from P2P lending is significantly higher than lending to financial institutions, many lenders prefer to reinvest their earnings into other P2P loans. The idea of compounding one’s returns is so popular that most lending marketplaces actually have an “auto-invest” feature that invests the interest earned by previous P2P ventures.
Times Are Changing Rapidly
The times of filling loan paperwork at your bank are gone. Lending marketplaces provide an online platform that increases the speed and efficiency of transactions while simultaneously helping adjusters boost their leads and conversion rates. For this reason, it’s important that investors and adjusters work to stay up-to-date with technological advancements in their respective fields. Otherwise, they both run the risk of being made redundant.
This article first appeared on RealAtom.