Your capital is at risk with direct lending. Seeking higher returns than those available in protected bank savings accounts, requires accommodating risk on your capital. Fortunately there are approaches you can adopt to protect your capital and minimise your downside exposure, reducing expected losses and helping to mitigate this risk.
At BondMason we focus on capital preservation. Carefully selecting lending partners and underlying loans, with a focus on those protected by security - typically backed by commercial or residential property lending.
Life of a Loan on BondMason
We classify loans as (1) Performing (2) Watchlist or (3) Recovery during their life on the BondMason platform. This ensures the loan book is correctly designated to provide transparency. The vast majority of all capital in underlying loans is returned - £99.60 out of every £100 invested is Repaid; when combined with an average interest rate in excess of 8.0% p.a. this results in an attractive return for clients.
Should a loan provide signals that a repayment may be missed, it is important to act quickly. We acknowledge potential defaults faster-than-most; and use the designation of 'Watchlist' to ensure any potentially non-performing loans get the careful attention they need.
Because we adopt a 'hair-trigger' for our Watchlist designation, we have seen approximately 15% of underlying loans available through the BondMason platform be classified as 'Watchlist' at some point during their life with us. Although this may appear a high proportion, it ensures that we are focussed on any potential non-performers quickly.
If we discover a material piece of adverse news, then the underlying loan is classified as Recovery. This stimulates a greater level of activity from the team at BondMason, liaising more closely with the lender partner to discuss possible outcomes and ensure all is being done to recover client investments. Approximately 5% of underlying loans will be classified as Recovery.
All is well that ends well
Our close attention to the performance of the underlying portfolio, in addition to the careful filtering at the outset, has ensured that the total capital write-offs arising from non-performing loans has been less than 0.4% p.a. to date. This statistic excludes interest received on these loans; which improves the position further.
Whilst it may not be comforting to see loans classified on Watchlist or Default, clients on BondMason should rest assured that this means that the team here is working hard to protect their capital. Even after the loan has been classified as Default or Watchlist on BondMason the expected loss on that loan averages just 2.5%. In other words, on average, £97.50 is repaid out of every £100 from loans classified as non-performing.
Should you have any questions with respect to the performance of your account on BondMason, please do not hesitate to contact a member of the team who will be happy to help.
Another BondMason blog which may be of interest is 'Monitoring your investments'.
Warning: Nothing in this article should be construed as advice. Your capital is at risk.