One of the most important issues for investors who use P2P platforms is what you might call the competition for collateral. This signifies a fundamental issue for lenders of all sorts – you can only secure your loan against an asset if it the asset is available as security. Most of the time, a company’s assets – its buildings, equipment, book debts and so on – have already been pledged as security to its main lender, which is almost always a bank. This explains why the vast majority of loans that are advanced to businesses by P2P platforms are unsecured, meaning that they are not backed by a legal charge over any of the business’s or the business owners’ assets.
For P2P platforms, this makes sense. If all loans had to have asset backing far fewer would be made because most of the time the assets simply aren’t available: the banks have already won the competition for collateral. But for lenders this situation presents a problem. What sort of return should you expect when there is no collateral available? That’s where secured P2P lending backed by commercial and development property comes into its own. In these transactions there is no competition for the collateral because every loan is backed by a specific property asset that has been professionally valued. Lending even against property is not risk free, but at least lenders can reassure themselves that they don’t have to stand behind anyone in the queue for security.
