Choose your risk level

That is why at Connective Lending, we have a multiple tranche loan model. This model allows lenders to invest in any of our three tranches which accommodate each loan, carrying a different priority pay-out ranking. 

So how do these tranches work?

We have three different tranches for every loan we offer. Each tranche has its own interest rate, LTV and priority ranking.

When repayment of a loan occurs, under the Terms and Conditions, the Lenders in Tranche A are entitled to receive payment first, followed by B and C.

Tranche A	Tranche B	Tranche C
Maximum LTV up to 45%	Maximum LTV up to 60%	Maximum LTV up to 70%
First priority ranking: This means lenders in this tranche are paid first, before Tranche B and C.	Second priority ranking:  In this Tranche, lenders are paid out after Tranche A but before C.	Third priority ranking: This means lenders in this tranche are paid out last.
Interest Rates between: 5%-8%p.a.	Interest Rates between: 8.1%-11%p.a.	Interest Rates between: 11.1%-16%p.a.
Capital Risk Level Low: the value of the asset would need to fall by 55% before your capital was at risk.	Capital Risk Level Medium: the value of the asset would need to fall by 45% before your capital was at risk.	Capital Risk Level High: the value of the asset would need to fall by 30% before your capital was at risk.

 

For example, here is a situation where an asset has to be sold to recover the outstanding debt. If the asset was valued and lent at an LTV of 70% but the final sale price becomes 40% below the initial valuation. Lenders in Tranche C would not be paid however those in A and B tranches would.

Making sure you are always diversifying your investment

When investing your money into any investment, you must spread the risk over many loans. Diversifying your money strengthens your investment portfolio by ensuring that you have a small slice of many loans, rather than all of one loan.

The principal reason to do this is to minimise your risk. Spreading your money over several loans with different assets helps to ensure you are not overly exposed. A highly diversified portfolio will mean that you are not overly concentrated on certain assets or borrower.

We have gone one step further to ensuring lenders do not over-commit on a loan by capping the amount they can invest. Here are the two distinct ways for this:

24hr bid restriction: for popular loans, we may place a bid restriction that will last 24hrs. The bid restriction ensures we can fulfil a loan by having many lenders instead of a handful. We will clarify any loan with a bid restriction within its description section.

Bid restriction against ‘Available Balance’: This is a restriction on the amount that any lender can invest into in a single tranche at any one time per individual loan. This restriction prevents investors from too much exposure to their portfolio into one loan, ensuring a more diverse portfolio.

The restriction is based on the overall available balance including what may have already been invested in any of the 3 available tranches.

This means for example:

An investor with an available balance of £1000 could only invest up to 50% or £500 in Tranche C and up to 70% or £700 in Tranche B.

Any previous investments in the chosen Tranche will be added back to the available balance before calculating what is left available to invest.

If an investor has already invested £500 or 50% in Tranche B then the £500 will be added back to the “available balance” so only a further £200 can be used making a total of £700 (70%). A further deposit of funds maybe required where the investment in a single tranche is split in two due to the reduced available balance.

 

The table below identifies the tranches and bid restriction:

Tranche A	Tranche B	Tranche C
Restriction Level: 0% (you can invest all your ‘Available Balance’ into a this tranche per loan at any one time).	Restriction Level: 70% (you can invest up to 70% of your ‘Available Balance’ into this tranche per loan at any one time).	Restriction Level: 50% (you can invest up to 50% of your ‘Available Balance’ into this tranche per loan at any one time).