Why do customers choose marketplace lending?
There are many different types of customers in marketplace lending, and each of them have their own reasons for choosing this type of borrowing. Get to know the different types of lenders, the types of loans they can use and the advantages that marketplace lending has to offer for them.
Businesses
Business loans: Many SME look for alternative means of financing these days, as banks reduce their lending capacities. Moreover, bank loans often take too long to come through. For a business in need for quick liquidity marketplace lending can often be the ideal solution. SME loans are very interesting to investors, as they usually offer great security coupled with moderate returns and make for greater sums.
Factoring and reverse factoring: Factoring (also called supply chain financing or invoice financing) is a type of financing that enables a business to optimize their supply chain, while retaining their liquidity. When a manufacturing business orders required materials from a supplier, they are required to pay the invoice in accordance with agreed credit terms. This can create a problem, since the business that has to pay would like to pay as late as possible, while the supplier would like to get paid as soon as possible to use the funds to produce new materials. This is particularly relevant with businesses following a just-in-time strategy. This is where factoring comes in. Factoring firms finance the payment to suppliers, and pay them immediately while allowing the other party to keep the originally agreed upon payment delay or even a little bit longer. The factoring firm will then retain a small portion of the invoice amount to cover their costs. This situation is a win for all parties involved, as it helps tremendously with liquidity management. As this sort of operation requires a quite substantial amount of financial means, this is where MPL comes in, allowing investors to be a part of this procedure, by helping to refinance these transactions.
Pawn loans: Pawning is a business model with a long-standing history. Individuals or? firms requiring a quick cash influx can pawn some of their possessions, and retrieve at a later time. Businesses which working as pawn shops have one important factor to account for. They need large amounts of liquidity to finance the transactions for which they receive security but having all that money lying around, just in case you need it, would be hugely inconvenient and inefficient. This is why the easiest way to solve this problem is to borrow that money when it is needed. This allows the pawn businesses to operate efficiently and supply their customers with the necessary funds. These kinds of loans can easily be financed through marketplaces too, and offer considerable interest rates, for the comparatively low risk involved, as the money lent this way is secured through with collateral.
Agricultural loans: Running an agricultural operation requires large investments. Farming equipment is becoming increasingly technological, which drives costs up and live stock and supplies can be quite expensive too. Moreover, the cycle between sowing and harvest is long. Investments placed in agriculture are comparably safe too, usually with longer running times. Marketplaces can be a great way for farmers to acquire the necessary funds when needed. These funds help fund an essential part of our economy.
Private (consumers)
Consumer loans: Moving from one apartment to another and need some new furniture? One of the kids wants to learn how to play the piano, so you need an instrument? Large expenses such as these can come at an inconvenient time, when you do not have the necessary funds available. This is where MPL comes into play, as individuals get the chance to apply for loans through online marketplaces with less risk of open rejection. Moreover, they receive the much needed funds in a timely manner by borrowing the money from other individuals who are willing to use this as an investment opportunity. It’s a win-win situation.
Mortgage loans: Probably one of the oldest types of loans present in Marketplace lending, mortgages are an easy way for investors to lend money with relative safety, as they will know that there is a physical asset (the real estate covered by the mortgage) functioning as security to the loan. Post-2008, investment in mortgages has taken a hit, since the shady mixing and matching of differently rated mortgages into bankable products played an essential role in the financial crisis. MPL however, offers a new opportunity as investors get to choose from individual loans instead of having to buy prepackaged loans, constructed in such a way, that the investor does not know what they are actually buying.
Car loans: When financing a car, there are multiple options. Leasing is well known, but comes with the caveat that ultimately you don’t own your car. This is why some people choose to finance the initial buying price with a loan. Marketplace Lending offers a great possibility for this as individuals can apply for the loan on a marketplace, provide all the information needed, and potential investors can decide whether they would like to fund the loan depending on interest rate and risk profile.
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