All You Need To Know About Investing in Business Loans
Interested in investing in business loans? Wondering which is the best P2B (peer-to-business) platform to start with?
Well, you’re in safe hands!
In this guide, we will give you a brief overview of the best P2B platforms that currently offer secured investment opportunities.
What You'll Learn Today
In this article, you will learn what to look out for when investing on P2B platforms. Before we jump to our list of the best P2B platforms at present, let’s give you a brief introduction into business loans. If you're looking specifically into P2B real estate platforms click here.
What is P2B Lending?
P2B lending is an investment form where people invest in business loans on P2P lending marketplaces or P2P lending platforms. Business loans are very different to consumer loans, which most P2P investors invest in.
Business loans are often backed by collateral and the purpose of those loans is to grow a business rather than to pay for consumer goods. As a P2B investor, you invest in value-generating assets as opposed to consumer debt.
How to Evaluate P2B Platforms
Evaluating P2P (peer-to-peer) platforms isn’t easy. In fact, we look at 93 different factors when reviewing and rating P2P platforms, and, when it comes to P2B platforms, there are additional criteria investors should be aware of.
Investing on P2B platforms by using one of the automated investment strategies is quite risky as most P2B platforms’ auto invest tools won’t give investors full control over their investments.
Therefore, we suggest evaluating each business loan manually, unless you have already done your own due diligence and are aware of the borrower’s financial performance.
Similarly to P2P and real estate platforms, we have identified some of the key criteria that investors should be looking at when choosing their P2B platform.
Keep scrolling to find out more...
When it comes to P2B lending, you should invest in loans that are backed by collateral as well as the personal guarantee of the borrower.
In the P2B space, it’s not uncommon for each loan to be backed by different types of collateral.
Note that an invoice or personal guarantee doesn’t typically have the same value as a mortgage.
Before investing in a loan, we suggest that you have a look at the borrower’s balance sheet in case the loan is covered by a corporate guarantee.
The balance sheet will give you some insights into the assets that are currently available as well as the outstanding debt with other creditors and the profitability of the company.
Is this too confusing for you? Investing in microloans might be a better fit for you.
The validator determines the value of the collateral. As an investor, you want to verify that the validator is experienced and knowledgeable enough to access the value of the collateral.
If the validator fails to properly assess the collateral, the borrower may be unable to repay the debt and if the collateral needs to be liquidated, you might face losses.
If the validator isn’t listed on the platform, you should reach out and ask for further information.
If the loan is used to expand the business’s premises, it’s often backed by a mortgage. In that case, the Loan-to-Value ratio is something you should pay attention to.
The LTV measures the loan value against the collateral value, and, should the mortgage be valued at €100,000 and the loan €40,000, the LTV would be 40%. The lower the LTV, the lower the risk of default.
A LTV of 40% is considered to be low.
Thinking of investing in business loans from companies in the invoice financing business? You might want to look at the Skin in the Game ratio instead.
Skin in the Game
This metric represents how much of the loans the finance company themselves invest in, and this stat is worth looking at because the higher the Skin in the Game ratio, the more effort the lending company will expend in collecting the loan repayments.
Just to give you an idea. Loan originators in the payday loan business on Mintos have 5% - 10% Skin in the Game. Loan originators on Debitum Network tend to have 15% or higher. So, it would be safer to go with the latter platform on this one.
As you might have noticed, we didn’t even consider the return from your investments when looking at the primary criteria. This is because the yield of your P2B investments is not as important as its safety.
Let’s look at the potential earnings now…
When reviewing P2B platforms, you will be attracted by high yields, which platforms of this type tend to promote.
While high yields are great, the risk involved with investments on those platforms is typically greater, which is why the interest rate shouldn’t hold too much power over your decision.
P2B investments can yield from 8% - 25% per annum. The higher the yields, the more due diligence required from the investor’s side. You might want to request additional financial data before making a decision.
Availability of Projects
High yields are only good if there are high-yielding investment opportunities.
The due diligence of businesses is very time-consuming and expensive, which is why there aren’t typically as many business loans as there are consumer and short-term loans.
Note that it can take you some time to build a fully diversified P2B lending portfolio since the minimum investment amount is usually higher than P2P loans’.
Also worth noting that most P2B platforms require a minimum investment amount of €50, meaning you'll need to invest at least €50 into one project.
Interest for the Grace Period
Thinking of investing higher sums of money? You’ll want to know about the grace period as this can have an impact on your interest earnings.
The grace period is the time between the scheduled repayment and the moment when the money arrives in your investor account.
This can take up to a few days during bank holidays and weekends. While most platforms don’t pay interest for the delayed period, a few P2P marketplaces like Debitum Network do.
The trust in P2B platforms has been damaged by fraudulent P2B lending sites in the past, which makes it hard for many investors to invest in platforms that might appear to have a similar business model.
During your own due diligence process you should look at the following factors:
- Make sure that the platform has a dedicated ‘About Us’ and ‘Statistics’ page
- Ensure that the platform shares data about their evaluation of borrowers or loan originators
- Make sure that the site’s business loans (investment asset) description is comprehensive, and includes additional financial data about the borrower
- Ensure that the deal structure, as well as the securities of the asset, are clear
- Check the customer support to make sure it is responsive
You might have noticed that we haven’t mentioned anyusability-oriented criteria, like having the possibility toinvest automatically or the option to resell your investments on the secondary market. We would rate these two features as tertiary criteria since they’re not as important for P2B investors who tend to invest long-term while picking their own investments.
Best P2B Lending Sites
Two of the best P2B lending platforms are without a doubt Debitum Network and Finbee. Investors should approach the three remaining P2B platforms in the table below with caution, as the usability and transparency of those platforms have a huge potential for improvement.
|P2B Platform||Average Interest||Our Rating|
We measured several factors when coming to the above ratings - find out more about in our individual P2P lending reviews.
1. Debitum Network
Debitum Network in Short
- Invest P2B loans secured by buyback and collateral
- Minimum investment from €10
- Functional Auto Invest
- One of the most user-friendly platforms
Debitum Network Overview
In joint first place... Debitum Network!
Debitum Network is the most transparent P2B lending marketplace at the moment. Debitum’s team regularly publishes talks with investors and partners within which they share valuable information about their due diligence process and general insights from the industry.
When investing on Debitum Network, your investments are secured by a buyback guarantee and collateral. Some assets are even insured by an insurance company which will step in if repayment is delayed by more than 90 days.
Debitum Network also gives investors access to documents that represent the evaluation of their loan originators. Those documents give you insights into the profitability of the loan originator, skin in the game, loan book size, and other relevant metrics that help you assess the risk of your investment.
Debitum Network is currently the best P2B platform (marketplace) to invest on.
Ready to sign up? Don’t miss out!
Learn more about this P2B platform in our Debitum Network review.
FinBee in Short
- Invest in unsecured consumer and business loans
- Minimum investment from €5
- Automate your investment with AutoLend
- Higher average interest
Alongside Debitum Network, FinBee is one of the finest P2B platforms.
FinBee is a Lithuanian P2B platform that is also the platform’s loan originator. According to Lithuanian laws, a P2P lending platform cannot provide payment services without an electronic money license which is why FinBee founded another company that obtained this license in order to facilitate the transfers between FinBee and the investors.
Lithuanian regulations are also much stricter than those in other countries like Estonia, where platforms are not forced to comply with strict regulations. While in Estonia, almost anyone can start a P2P platform; the entry barriers in Lithuania are much harder, which lowers the chance that a P2B platform would practise fraudulent behaviour.
FinBee is one of the platforms that offers consumer and business loans; all business loans are secured by either the personal guarantee of the business owner or real estate collateral.
FinBee is also known for providing flexible financing options to Lithuanian businesses; the platform collaborates with the government to crowdfund business loans to businesses in need.
The Lithuanian government trusts FinBee’s lending practices, which certainly evokes confidence.
Feeling positive about FinBee? Get investing!
Learn more about this P2B platform in our FinBee review.
Flender in Short
- Invest in irish business loans
- Max. loan term up to 36 months
- Secured by underwritings
- Reinvest your returns with AutoFlend
Flender is a P2B platform from Ireland, and by investing in Flender loans you help fund loans for small and medium Irish businesses. While the platform shared a lot of additional data with us, there is still room for improvement when it comes to the project description.
In this project description, Flender fails to present accurate and detailed information. The financial snapshot of the borrower is only accessible by registered users.
Any potential investors should also know that projects on Flender aren’t secured by collateral, but instead the personal guarantee of the borrower.
Being more transparent when it comes to sharing project-specific data would certainly increase our trust in Flender.
Ready to become a lender on Flender? Let’s do it!
Learn more about this P2B platform in our Flender review.
Crowdestor in Short
- Invest in P2B loans
- Minimum investment from €50
- Additional provision fund
- Additional provision fund
Crowdestor is an Estonian P2B lending platform operating from Riga, Latvia. Crowdestor is known for listing high-yielding business loans to borrowers from different industries across multiple countries.
The platform has funded loans for companies in the energy, transport and mobile gaming sector. The platform is easy to use and the overall experience has been positive so far.
The only two problems we have with Crowdestor are:
- The platform’s lack of communication, and
- Their rather insufficient information about the borrower
Let’s look at #1: While they do share news on their Crowdestor Facebook group, the platform lacks a dedicated customer support service.
And #2: The project descriptions simply aren’t comprehensive; In fact, most of the time, the only thing attached to the descriptions is a report about the borrower from the business registry.
Crowdestor is also known for their manual approach when it comes to evaluating the risk of their projects. The exact process isn’t known which makes it hard for the investor to do their own due diligence.
A credit scoring model showing how Crowdestor evaluates the risk of individual projects would certainly be appreciated amongst us investors.
Ready to get risky? Give it a go here!
Learn more about this P2B platform in our Crowdestor review.
Wisefund in Short
- Invest in P2B loans
- Secured by various collateral
- Transparent project description
- Responsive support
Wisefund is a small Estonian P2B platform predominantly works to originate loans for Estonian businesses. The platform faced severe criticism about the third-party buyback guarantee and the lack of transparency. Wisefund mainly lists high-yielding projects with an interest of around 18% per annum.
Due to the current economic downturn, Wisefund’s funding speed for new projects is rather slow. Also, some of the investors are experiencing delayed payments as a result of the pandemic. We hope that the platform will improve on the quality of information they share, because, as it currently stands, it doesn’t meet our expectations on a P2B platform.
Keen to try it out anyway? Sign up here!
Learn more about this P2B platform in our Wisefund review.
Investing in Real Estate Loans 🏠
One way to invest your money in business loans is also by investing in property-backed loans.
You basically fund loans from real estate developers. Your investment is secured by a first-rank mortgage which makes it very secure compared to the “borrower’s personal guarantee”.
When it comes to investing in real estate loans, we prefer to use EstateGuru. We’ve been investing on EstateGuru for several years now and are very pleased with the performance of our portfolio.
EstateGuru is also one of the most transparent P2P platforms you can invest on in 2020.
Start investing from only €50!
Learn more about this platform in our EstateGuru review.
Is P2B Lending for You?
Investing in business loans isn’t for everyone. So, if you’re not feeling comfortable, don’t worry, you’re not alone!
Retail investors who don’t want to spend time analyzing financial reports or doing their own due diligence about loan originators won’t be happy with peer-to-business marketplaces and P2B platforms.
The main reason for investors’ not wanting to invest in P2B loans is almost always down to the industry’s lack of transparency. Every single platform can improve in this area.
If you are one of them, do your own due diligence and choose one of the suggested platforms that best fits your investment strategy.
If you are just starting out, read this guide about how to lend money for profit for a brief overview of all the possible options. Our latest article about how to choose your first P2P platform will help you learn more about the proccess of choosing a suitable P2P lending site.
Be Aware of Scams
Investing in business loans is an unpopular and risky strategy in 2020. After the recent revelations regarding the fraudulent P2B platforms Kuetzal, Envestio, Monethera and Grupeer, the investor’s appetite for business loans has decreased.
Within four months, four of nine of the most popular P2B platforms have turned out to be fraudulent. If you plan to invest on P2B platforms, be extremely cautious and complete in-depth due diligence before investing large sums.