Alternative lending is a new asset class, which offers a very attractive risk / return relationship.
Alternative lending overview
Alternative, or non-bank lending, is an emerging and strongly growing asset class that comprises three main intermediaries: marketplace lending (or also called crowdlending or P2P lending) platforms, non-bank balance sheet lenders (or also called financing companies) and loan funds (also called direct lending funds).
In this section of the Lending Deposit website, you will find an excellent overview of the main players in all three market segments as well as details about them and the lending volume underwritten or intermediated by them.
Marketplace lending platforms are usually open to both, private, as well as institutional investors. Alone in Europe (Lending Deposit focuses on the eurozone market), nearly a hundred different marketplace lending platforms exist. We know them (nearly) all and we provide you with some basic information to choose the most appropriate platform for your investment needs. You have a wide variety of borrower types to choose from: The majority of marketplace lending platforms lend to consumers but there are also many small business lending platforms, a few specialised invoice discount platforms also ones that focus on mortgage lending.
In contrast to banks, marketplace lending platform do not lend to borrowers themselves. Similar to banks, however, they perform the following services:
- Marketing to borrowers and lenders / investors
- Risk assessment and „underwriting“, i.e. establishing a lending contract
- Administration of the lending contract (payments, etc.)
- In case of a default: Activities to try to recover the principal and interest payments
Balance sheet lenders invest their own capital in the loans they issue. In so far, they are not that different from banks. However, nearly all of the (newer) balance sheet lenders use efficient online lending platforms and thus count as fintech players. As few balance sheet lenders can fund their whole lending activity from their own equity capital, most balance sheet lenders refinance themselves through the issuance of debt. Thus, they can provide attractive investment opportunities for institutional investors and – through specialized lending platforms like Mintos – also to retail clients.
Loan funds or direct lending funds are exclusively oriented towards institutional and sophisticated investors. They usually focus on mid-market and large corporate borrowers and do the underwriting themselves, often using brokers to attract new clients.