A Light Summary Of LEND.ch, The Swiss P2P Lending Provider

LEND.ch is a Swiss peer-to-peer lending provider offering lending in Swiss francs (CHF). It hasn't opened up to 4thWay's specialists with data and access to its key people and therefore we haven't conducted our usual week's long assessment of it.

So this is kind of a soft review of what it offers – really it's much more a description than a review – just to give you something different for you own further research.

What does LEND do?

LEND offers loans to borrowers in Switzerland for between one year and seven years. It does unsecured personal loans and business loans that are repaid monthly. It also offers property loans to individuals as well as to property developers and other businesses.

The loans might be repaid over time or at the end.

To lend through LEND, you can be a citizen of, or resident in, a very large number of countries.

LEND has completed CHF 459 million (€491 million) since 2016.

What is the minimum you can lend?

The minimum you can lend is CHF 500 (€535) per loan or CHF 1,000 (€1,070) for larger loans and you choose your own loans. I have no data on how easy it is to spread your money across a large number of loans, as is necessary in these kind of lending.

You have several options for lending automatically and spreading across more loans without needing to choose them yourself.

LEND's performance

To reiterate, this is a very, very lightweight look at LEND – including how well its loans have performed.

All we have got to go on is a smattering of publicly available, aggregated data, which LEND states is independently verified. We haven't been able to pull apart its detailed data, question them about it, verify it and conduct our usual stress tests on it.

However, those statistics and information suggests that its lending would probably get our top 3/3 Exceptional 4thWay PLUS Rating – if LEND were to provide plausible, complete data and access that supported its claims.

History has taught us that peer-to-peer lending companies that provide the level of transparency that LEND does – combined with passing some of our background checks – are still more likely to do better for lenders, on average, than companies that provide less key information.

It's typical annual payout after bad debt is probably in the region of 5% per year – although expect variations over time. Especially if you don't lend across a very large number of loans.

There are a lot of tests we can't conduct, such as the number of loans that are extended for a long time due to difficulties or the number of times loans are rolled over into new loans, which would indicate problems.

More about the loans

Since we don't get detailed data, it's arguably even more important to understand the type of lending you're doing.

To that end, I just want to point out some details that you might keep in mind when choosing loans through LEND. These are the details that you won't pick up on if you rely solely on information on the LEND website.

Protections offered to you in LEND's property loans

For property loans, LEND usually takes a charge against the property, much like banks do. This is pretty much the best form of security. If the borrower wants to sell the property, the proceeds of the sale must be used to pay off the loan. Generally speaking, properties usually retain enough value over the course of a loan to be able to cover the outstanding debt.

Real-property loans through LEND can be rental properties that may or may not be currently rented out, perhaps partly for renovation, or for a holiday home, or a short-term loan called a bridging loan, or for properties bought for trading for a profit. And many other reasons.

The property loans can be either senior loans or junior to one other loan, meaning you're not always repaid first if the loan turns bad and the property needs to be forcibly sold. A bank could rank above you with lending to the same borrower against the same property.

The latest information we have is that the total lent to the borrower might hit 90% of the valuation. At those valuations, with a fall in property prices, you could lose a lot more money on a loan than you expected when the property is forcibly sold.

Protections offered to you in LEND's other loans

For business loans, LEND takes personal guarantees, but 4thWay's specialists don't assign any real value to this without substantial evidence from the provider on the scale of the impact. Decades of banking experience teaches us this caution.

LEND also offers optional payment-protection insurance to borrowers, which might meet loan payments for up to 12 months in some cases when a borrower is unable to pay due to accident, illness or unemployment.

4thWay's experience with this insurance in P2P lending is that, again, we need to assign no value to it unless hard data tells us otherwise.

On top of that, when I worked in insurance some decades ago, I built up a rare specialism in understanding whether each type of insurance product is worth the price paid for it, and also learned to understand the small print that prevent payouts (so-called “exclusions”).

In Switzerland (as in the UK, Germany and probably all other countries), this particular form of insurance has continued to be a disappointment for many beneficiaries up to the present day. The insurance contract I read for LEND borrowers had extensive exclusions.

At LEND, loans have to be fully financed by the borrower for the loan to go ahead. If not, lender money is not lent out. This is almost always the case in P2P lending and it's what you want to see, as someone receiving a loan smaller than their needs is a greater risk of loss to lenders.

Security and insurance aren't your main defence at LEND – loan quality is

None of the above on personal guarantees and insurance should unduly worry you. Nor the fact that a lot of the business and personal lending is not secured on real property.

The main thing is to understand what type of lending you're doing. This is so that you can better assess it and so you understand what's happening when any of your loans turn bad.

For many of LEND's loans – specifically LEND's – it's not likely to be the security or insurance that keeps lending losses low. Rather, it's likely to be the quality of the borrowers.

In this regard, it's perfectly acceptable that security is not always the best or even that most loans have security. Your defence against losses is rather to spread your money across lots of loans.

The (admittedly quite limited) evidence available to us indicates that these are likely to be either in line with average risk or potentially leaning towards lower-risk loans for their type, with decent quality borrowers. The bad-debt level is probably quite reasonable for these kinds of loans. Although those are indications only, based on the information we have.

People and processes

it's not really possible to give you meaningful information on LEND.ch's people and processes based on the information we have.

In particular, I think LEND needs to, at the very least, outline in much greater detail how it goes about assessing borrowers and their properties, and how and when it makes decisions to turn things around when a loan payment is late or the loan turns bad.

Early exit

LEND doesn't usually enable you to sell your loans early, although in some cases it can be possible if you're auto-lending through one of its various mechanisms.

As far as I'm concerned, that is often a blessing in disguise, because lending until borrowers repay naturally is usually a sensible strategy.

That's especially with personal lending and business lending.

What lenders tend to do with these kinds of loans when there's an economic downturn is they firstly see bad debts rising, they panic, they sell all their good loans and stop earning interest, and then they are left only with their bad loans, which probably won't recover in full. In other words, the result entirely of the lenders' own strategic decision is to turn a portfolio of loans that (probably) would have been okay in the end into a loss-making portfolio instead.

Currency risk

If your normal currency isn't the Swiss franc, your rewards of lending are impacted by changes in the exchange rate. These changes will boost or reduce your returns. See The 12 Key Peer-To-Peer Lending Risks for ways to minimise currency risk.

Governance, regulation and lending structure

Switzerland has a good reputation for corporate governance. In short, this means the steps it takes to ensure companies are run well, legally, and to the benefit of all.

When it comes to actual regulation for you lending your money, LEND is probably only really monitored for anti-money-laundering reasons. However, it possibly now holds as much as CHF 1 million in cash deposits for more than 60 days at a time, which means that more serious supervision will happen.

Our investigations conclude that the legal contracts mean you're doing pure P2P lending. So if LEND goes out of business, the individual borrowers still owe you, and not LEND. You purchase a claim on the contract made between LEND and a borrower through an assignment agreement. This is one of the most common ways to create P2P lending contracts, making it less likely to create legal problems for you.

Visit LEND.

Pages linked to above:

The 12 Key Peer-To-Peer Lending Risks.