Please read this section carefully. It discloses the key risks to which you are exposed when undertaking peer to peer business lending. There may be other risks relevant to individual business lenders to which you are exposed and which will be in addition to this general risk warning.
As ThinCats do not offer advice, we would recommend that you take advice from an independent financial adviser before committing your funds to ensure that you fully understand the risks, and are satisfied that peer to peer lending is appropriate for you, and meets your needs and personal financial circumstances.
What is Peer 2 Peer business lending and are there compensation scheme arrangements?
When making a peer to peer loan your capital being lent to a borrower is not covered for compensation in the event of a loss by the Financial Services Compensation Scheme.
Peer to peer lending involves you lending your capital to one or more businesses in return for a fixed rate of interest which you have agreed at the time of the lending commitment. Remember, you are lending to business and therefore your capital is at risk and ongoing interest payments are not guaranteed if the business borrower defaults on capital or interest payments. Note: Whilst we specialise in loans with security it may prove impossible to recover all or part of the loan by calling in the business assets held as security on that loan. Please note Community Chest loans are unsecured.
It is important to remember that any references on this website to historic default events or loan default rates are not necessarily indicative of future default rates. Please see our section on default rates for more detail.
Although ThinCats operates a Secondary Market to provide an opportunity for lenders to sell their loans (particularly for lenders who need to sell their loan to receive cash before the end of the normal loan term), there is no guarantee that a lender will be able to sell the loan at all, or at a price which you believe to be fair value. The price you will receive, and the ability to sell the loan will depend on the supply and demand at the time that you wish to sell your loan (that is, there need to be willing buyers of your loan). It is further possible that you may lose accrued interest to be paid on your loan, dependent on the loan payment interest date, and the date at which the sale of your loan is concluded. If there is a problem or uncertainty relating to that loan it may not be traded on the secondary market until the situation has been resolved satisfactorily. Furthermore, Community Loans which are unsecured cannot be sold on the Secondary Market.
A small number of loans are specifically designated as ‘indexed linked’, which means that each year the value of those loans is normally revalued to take into account of inflation as measured by an index such as the Retail Price Index. In these cases the value of your loan would normally be likely to increase each year, unless the retail price index is not changed.
All lenders should undertake their own due diligence prior to bidding on the Secondary Market. Not all loans can be traded on the Secondary Market for a range of reasons. A key exception to this are ThinCats Lending Club (TLC) loans, which may potentially contain impaired loans but can still be traded. Information about the status of each loan and the breakdown of the mix of loans within any TLC can be found in the VIP Dropbox.
Although the rate of interest which a business borrower has committed to is fixed at the outset of the loan, it is possible that financial difficulties faced by the business borrower may mean that the loan will need refinancing, which may mean you need to accept a lower rate of interest in order to have greater certainty that your capital will be repaid.
If ThinCats were to stop trading – that is, face insolvency – it would present some risk to you, in that the firm would no longer be administering borrower repayments back to your account. However, in order to mitigate these risks, the firm has put arrangements in place to protect your money in the event of our insolvency including funds not committed to lending being held in a segregated client money trust account according to the rules of the Financial Conduct Authority. Should the firm be made insolvent, the firm has existing arrangements with another Financial Conduct Authority-regulated firm to take over the administration of the business loans you have made to ensure an orderly repayment of interest and capital to be credited to your account as normal throughout the term. Funds held in the client money account will be collected in and repaid by the insolvency practitioner.
Your loans are made to UK businesses and the borrower’s ability to repay the loan would likely be affected if there was a dramatic downturn in the UK economy or in the economic sector or geographical location in which they are based. The viability and sustainability of business borrowers’ business models is of course fundamental to the level of risk that they may default on interest or capital repayments.
Interest rates and personal circumstances
As with any fixed term loan, there is a risk that interest rates could increase before the end of the committed term, which would mean that you would not be able to move your capital into a higher interest bearing loan until the maturity of your existing arrangements. While this is not necessarily a risk to your capital or the interest which you will be earning, it is a consideration that you should make in relation to your own personal needs and circumstances.