Would you pay someone to borrower money from you? Let me ask you again, just in case you misread – would you PAY someone to BORROW money from you??
It defies logic but it’s true!!
Last week yields on corporate bonds issued by Nestle, the Swiss chocolate company, went negative. Basically investors have been paying more for Nestle bonds than they know it is possible to get back in interest and capital payments. This reflects the tidal wave of global capital that is looking for safe places in a world of high geopolitical uncertainty and worryingly unconventional monetary policy.
It is not just corporate bonds, Belgium, Denmark, France, Germany, Japan and the Netherlands have all seen their government debt move into negative territory.
Luckily Peer to Peer Lending offers yield hungry investors the opportunity to lend money directly to credit worthy borrowers and be paid interest for doing so, no negative yield here!!
Peer to Peer lending offers investors a bond like fixed income return for a set time period, interest is paid on a monthly basis and the capital is returned at the end of the loan term as a bullet payment.
The risk of the borrower failing to pay back the loan on the due date can be mitigated by securing the loan by way of a 1st legal charge against the most traditional form of collateral, a commercial property.
The 1st legal charge means that when the property is sold or refinanced, the holder of the loan will be first in line to be paid ahead of any bondholders or shareholders. Its the least risky position.
The potential to earn 6% pa by lending to the owner of an income producing commercial property is fairly attractive, especially as your capital risk is limited to less than 50% loan to value of the property being offered as security.
Shakespeare famously quoted “neither a borrower nor a lender be”.
A wise addition to that would be – “if you do decide to become a lender, at least make sure you are getting paid for doing so!”