Anatomy of a P2P deal

With so many applications received by platforms every day, a lot of work goes into the few that ultimately progress to becoming viable P2P investments. By Millie Pettman, senior underwriter at Kuflink

Peer-to-peer lending’s popularity is growing, but it’s important that there is an understanding in the market around what will work on a platform and what won’t. I’m part of the underwriting team at Kuflink and I wanted to share the things we look for in each application, and how we decide to progress the best applications through to becoming viable P2P opportunities for investors.

Three key criteria

We assess each deal individually on its own merits but our approach always comes down to three things: the asset, the borrower and the exit plan. As a property-backed lender the quality of the asset is essential which means we will carefully consider the property type, location, valuation and what a sensible loan to value looks like.

With the borrower, we get a very wide range so it’s important that we look into their experience, background and their ability with the kind of project they are looking to fund. Every loan will need a clear exit strategy, typically a sale or refinance, and we will carry out stress tests to make sure what’s achievable. In terms of deals that we take on, we like strong assets in good areas, usually with experienced clients who have a defined purpose and timeline. As long as the fundamentals stack up across these key areas, then we’re realistically open minded and will consider residential, commercial, mixed use, houses in multiple occupation and development finance as well.

Red flags

A huge part of the borrower review process is ensuring they have a good credit history. This means any signs of bankruptcy, county court judgements or a history of financial misbehaviour are red flags that we would need to look out for.

Other issues we’re wary about can include infeasible plans. Occasionally we’ll receive applications for projects that are overly ambitious and they’ll struggle to achieve their plans with the funds they are trying to raise.

Read more: P2P lending’s next era

Fortunately, we have a lot of in-house property experts here and are able to help share that knowledge and expertise with applicants. Their plans may not be a million miles away from something workable, and with our input we can help show them what is more feasible with suggestions that give them a valuable perspective.

Staying practical

Crucially, for us this is about staying practical.

We actively stay away from a box ticking exercise. Instead we take time to really understand each application and approach it with both a wealth of in-house experience (we also have our own law firm that we work with) and a healthy dose of common sense. This is about understanding the purpose of the loan and what the exit strategy looks like. Once all those important parts fit together, we can be in a good place to work with the applicant and overcome any slight issues standing in the way.

This is commercial content, produced in partnership with Kuflink.