1.6% cash return in July
In Sep, our P2P portfolio generated 1.6% in cash return. Total cash return for this year is 15.5%. As the economy slows down, we are now seeing more late payments. 2 serious ‘problem loans’ continued to make partial payments, giving us confidence that we do not need to make any impairments.
As the economy weakens, we now have 6 cases of delayed payments. 2 cases are more serious than others. The repayments were delayed for more than 2 months. In the conventional sense, the 2 loans would be considered ‘impaired’ or ‘defaulted’.
However, we are not writing off the principal amounts yet because the borrowers are demonstrating good faith by making some partial payments monthly. Yes, payments will be extended for a few more months and we may forfeit some late interest. But with only less than 20% of the principal left, we’re likely to recover the balance.
Late Payments not uncommon
After a year of p2p lending, our experience tells us that late payments are not uncommon in p2p lending. Out of the 10 loans that we participated in, 3 or 4 loans will be late.
We do not like late payments, but it is simply a fact of p2p lending. Late payments do not mean loan losses. Oftentimes, SME borrowers run into temporary cashflow problems resulting in payment delays to investors. This is not surprising. If the SMEs are able to manage their cashflow perfectly, they would probably be taking bank loans at lower interest rates.
Hence, the opportunity for the p2p investor is to lend to credible SMEs that do not yet possess excellent banking track records. Payments will sometimes be late. In return, the interest rate earned on such loans will be attractive. The key here is to distinguish credible SMEs from those that may fail.
Our invoice crowdfunding experience has been good so far. We received 11 payments already and no defaults. For a step-by-step walkthrough of an invoice crowdfunding deal, please refer to our previous writeup.
What we learnt is that payments can be sometimes early or late because it is really the debtor (and not the invoice seller) that is making the payments. The automated investing tool is also a great help in diversifying investments and re-investing returns.
However, properly tracking our returns can be quite tedious because of the sheer number of invoices we funded. We now have almost 50 invoices. Instead of tracking each invoices like we did for the p2p loans, we’ll group them into a CM portfolio. We’ll implement this next calendar year when most of our p2p loans would have matured so that we get a cleaner portfolio consisting of mainly invoices.
We recently received a number of emails recently seeking advice on p2p lending, invoice crowdfunding and defaulted p2p loans. As much as we would like to help, we are sometimes unable to respond quickly enough. In other instances, we may not know enough about a particular case to comment. Please use the community forum. The purpose of the forum is to enable investors to talk to and help out each other. Together, we can become smarter investors and make better crowdfunding decisions.