What to do with your investments in Peer Peer Lending in the event of a crisis?

An Economic Crisis involves a phase of Change and puts the existing situation at risk. For many, it is associated with an opportunity, but while living it, it is easy to see only the negative aspects. In this article, I want to take stock of P2P Lending and the possible consequences of the crisis that will follow the stop triggered by the Corona Virus.

As you know, if you read this blog, I am an early P2P Lending investor.

My first investments in Smartika (formerly Zopa) date back to 2008 and I have been investing in Bondora since 2014.

But it is only in the last 2 years that I have invested seriously in this asset class.

My portfolio has grown steadily to almost 20,000 Euros and I have opened more than 10 accounts in the Baltic and other platforms that offer loans to companies, individuals, and real estate operators.

I wrote one of the most complete and exhaustive.

Until the end of 2021, I worked a lot and I was perhaps even a little too enthusiastic about the sector.

Then the Participatory Loans Market entered a bit of a crisis.

At the beginning of the year, some platforms were blown up and the industry was put in serious jeopardy.

It had the first crisis of transparency and credibility.

Many flaws emerged and ultimately the absence of regulation and professionalism in most of the platforms.

Today more than ever the investment in P2P Lending is to be considered risky and feasible only after a selection of operators.

As if that were not enough, the probable Economic Crisis that will follow the Corona Virus pandemic has grafted onto this process already underway.

In this article

  • Why will there be an Economic Crisis?
  • What will this Crisis entail?
  • What are the foreseeable consequences on the P2P lending market?
  • What to do to better manage your assets invested in P2P Lending in times of crisis?
  • What opportunity will there be in P2P with the economic crisis?

Why will there be an Economic Crisis?

The Corona Virus is causing uncertainty and forcibly reducing world consumption.

Some industries will foot the bill and it is easy to predict that many businesses, if not helped, will no longer be able to recover.

For many small businesses, even a single month’s stop can mean not being able to pay salaries, bills, and fixed costs in general.

Tourism, travel, catering but also transport, construction, real estate, and the automotive sector will certainly have repercussions from this period of interruption.

Other sectors instead (eg pharmaceuticals, biotechnology, e-commerce) will benefit from the situation and the transition to online services will be accelerated by the crisis.

What will this Crisis entail?

It is not easy to imagine what the exact effects of the Economic Crisis we are about to experience will be.

Above all, it is not easy to determine how long this crisis will last and if it will resolve itself quickly or over a long period.

Surely many people will lose their jobs, some businesses will fail.

There is a severe risk to the usual highly indebted countries and the more fragile economies.

What are the foreseeable consequences on the P2P lending market?

The P2P Lending market is young made up of small to medium platforms.

Except for Mintos, which in any case remains a small financial operator when compared to other financial institutions, most of the operators are medium-small and in the start-up phase.

The crisis will have some consequences:

  • a strong outflow of capital from the platforms by frightened investors looking for safer instruments;
  • an increase in the rates of loans and promotions by platforms to counter this phenomenon;
  • an increase in defaults and delays in the payment of principal and interest ;
  • the decrease of projects.

There may also be the failure of some minor or opaque platforms, also due to the lack of lenders and income prospects in the sector.

What to do to better manage your assets invested in P2P Lending in times of crisis?

The first consequence of the Economic Crisis on the horizon is the importance of returning to an Active Management of your Peer to Peer Lending portfolio.

Until now, one of the advantages of this tool was Auto insurance Invest.

It was enough to set some parameters and start seeing the interests flow into your account daily.

Today Loan Originators and Projects must be carefully monitored and passive management is not convenient.

Today, more than ever, projects and various investment opportunities must be carefully analyzed.

There could even be excellent investment opportunities by taking advantage of the secondary market on which to buy discounted loan shares.

Secondly, it is important to monitor the portion of your assets allocated to this investment category.

I always recommend limiting investments in P2P lending to a minimum and allocating a small amount of capital (less than 5%) that you are willing to lose to this investment category.

Are you heavily exposed to P2P? I advise you to sell without necessarily doing it in a rush and losing the capital.

It is also important to differentiate and diversify.

Peer to Peer Lending can mean loans to businesses, individuals, or real estate.

I advise you to invest in all three of these investment categories to diversify as much as possible, but at this time to limit the loans related to real estate to a minimum and to carefully select those intended for businesses.

In my opinion, these are the sectors most easily affected by the crisis and which will give rise to greater defaults.

In this context, however, I also see some platforms at risk, from which I am leaving quite calmly.

What opportunity will there be in P2P with the economic crisis?

The Peer Peer Lending Market is immature and immature, but very lively.

In the last year, platforms have sprung up like mushrooms and many have also experienced disruptive growth.

Some have already skipped and others are highly at risk.

Others, on the other hand, are facing the contingent situation promptly and seriously.

I think the crisis will lead to a further concentration between platforms and the elimination of less solid players.

It will also eliminate the illusion of earning high returns without risk.

The default rate will also increase a lot on valid platforms and some promoters/loan originators will close their doors.

A sparkling market and even some pain await us.

A sparkling market because the returns and bonuses for investing will also increase a lot, the pains because defaults will be on the agenda.

I am reducing my exposure, I have disabled Auto Invest and am withdrawing from many platforms.

I don’t have time to track my investments daily and I prefer to look at the opportunities that are opening up in the stock market and stay at the window on P2P Lending.

I, therefore, think that I will keep the shares invested, but I will go back to accumulating some liquidity, without losing my temper and acting reasonably.

The crisis will make us better select the platforms and will make us understand what the real risks of this investment are.

Once the Economic Crisis is over, we will be able to invest with greater awareness and better weigh the risks.

In any case, the situation is very fluid and may evolve in the coming months (positively I hope) so I will update this article.

In the meantime, let me know how you are doing and what you are doing to manage this economic crisis on the horizon.

Leave a Reply

Your email address will not be published. Required fields are marked *