Peer-to-peer lenders’ handy mini-dictionary
When it comes to peer-to-peer lending, some industry terms can sound a little confusing. So, we’ve put together this useful little jargon buster to help you ensure you’re up to speed and ready to lend when a loan next catches your eye:
- Peer-to-Peer: P2P is a tool; an electronic system that enables lenders to connect directly with borrowers and lend to them. That said, P2P is like a sandwich, what matters is what’s inside. At Blend Network we have decided to focus on property-secured loans. That means that lenders are only able to lend to a business, not to another individual, and the loan is secured against first-charge on a property.
- Financial Conduct Authority (FCA): The FCA is the independent financial regulatory body that regulates financial firms providing services to consumers in the UK. Blend Network is an Appointed Representative of Resolution Compliance Limited, which is authorised and regulated by the FCA. In April 2014, the FCA introduced new rules regulating the P2P finance industry to help both lenders and borrowers make informed financial decisions.
- Loan-to-Value: LTV is the loan amount divided by the property’s value. Typically, a lower LTV ratio is seen as lower risk.
- Loan-to-Cost: LTC is the loan amount divided by estimated cost in new-build or redevelopment projects. Typically, a lower LTC ratio is seen as lower risk.
- Gross Development Value: GDV is the estimated value that a property or new development would sell for on the open market if it were to be sold in the current economic climate.
- Anti-Money-Laundering Check: AML checks are the set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions. At Blend Network, this takes place at on-boarding and a lender’s & borrower’s account will be activated only once AML checks are cleared.
- Know Your Customer: KYC is the process of identifying and verifying our customers. At Blend Network, this takes place at on-boarding and a lender’s & borrower’s account will be activated only once KYC checks are cleared.
- Treating Customers Fairly: TCF is a formal requirement laid down by the FCA designed to ensure that all financial services provided to consumers are done so in a way that isn’t detrimental to the customer. At Blend Network we have a number of measures in place to this end. For example, when a new loan gets listed, lenders cannot lend to this loan in the first 24 hours to give all lenders a fair amount of time to review the loan details and decide if they are interested or not.
- First Legal Charge: Having a legal charge over a property simply means that in certain circumstances, you have a right to take possession of, or sell, the property. Having a first legal charge over a property means that the lender has a first call (is the first in line) on any funds available from the sale of the property.
- Secondary Market: A marketplace where lenders who wish to liquidate their loan parts can try to sell. It is not a requirement for P2P lenders to offer a secondary market facility. Blend Network does offer a secondary market where lenders who wish to liquidate their loan parts can sell their loan parts. Note that finding a buyer on the secondary market may take time and there is always a risk of no one buying the lender’s loan part.
Put your new knowledge to great use and start lending on Blend Network’s double-digit loans today! Check out our loans and start earning up to 15% return p.a.