Glossary of Terms

A P2P Glossary of Terms

Auction
When P2P first started, loans were presented to 'the crowd' who would invest (or not).  When enough individual lenders liked a proposal, it became fully funded.  This has now changed to a system of Pre-Funding.

Credit Apetite
Different platforms have different attitudes to risk; some may actively seek working capital loans, others may concentrate on property-backed lending.

Credit Score
This is the process most banks use to determine whether to lend or not.  Companies are allocated a score based on a number of criteria.  If the score reaches a certain threshold, the loan is approved.  Some P2P platforms use credit scoring, but most do not.

Institution
These are large investors, typically family offices of investment funds.  They are investing heavily in P2P in order to get better returns on their funds.

Interest Rate
Set by platforms, within certain parameters.  Better quality borrowers attract lower rates.  Generally, interest rates will be above bank lending rates.

Lender
Anyone signed up to the Platform who has deposited cash which has been used to fund one of the loans offered on the Platform. Can also be a large institution who are increasingly using P2P Platforms to get a better return.

P2P Lending
Loans to businesses, initially by the crowd but increasingly using institutional money.  Larger than crowdfunding by a factor of ten.  Best viewed as the type of lending banks used to do, but wide variety in the market.

Platform
The web-based entity that brings together borrowers and lenders.  Typically platforms will take care of all the credit assessment, legals, monitoring and recoveries on behalf of their lenders.

Pre-Funding
In most cases, platforms will use their own money to underwrite a loan before it goes to auction.  This means the borrower has security of funding without having to wait to see if enough individual lenders will back the proposal.

Revolving Credit Facility (RCF)
In effect, an overdraft.  Can be drawn or repaid at will as business cashflow dictates.

Structure
The form of lending to a particular borrower.  For example, interest-only loans may be appropriate for property development, whilst a fully amortising loan may be appropriate to an MBO proposal.




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