Connective Lending does not offer any advice or make recommendations. Please seek independent advice from a financial adviser or other professionals. We recommend that you do your own due diligence on any project before deciding if you want to invest.
Compensation from bad debts
Financial Services Compensation Scheme (FSCS) does not cover Peer-to-Peer (P2P) Lending. If a borrower fails to repay his/her loan and eventually the loan defaults, your capital may be at risk.
Access to your money
Investing in loans on the Connective Lending platform, means you are making a financial commitment for the duration of the loan term (6 months). The borrower has the ability to repay the loan back at any time before the loan maturity date. We will be offering an option to liquidate your investment early via our secondary market. However, this may not be possible if a buyer cannot be found to purchase your loan part. As such, you will be required to hold on to the investment until the end of the loan term.
Connective Lending operates a Secondary Market to assist lenders to liquidate their investment if/when required, subject to a buyer being willing to purchase the loan part. The process is manual requiring the lender (seller) to select the loan part they wish to sell, enter the amount they wish to sell and any premium or discounts they wish to apply.
Unless there is a willing buyer to purchase your loan part, you will be required to hold on to the investment until the end of the loan term. The loan part may not sell within the timeline of the loan.
Capital and interest are only returned to the lender once the loan has been repaid or recovered where the borrower has defaulted. Borrowers can pose credit risk to lenders by failing to repay the debt as scheduled. Your investment may exceed the 6-month loan term as specified in the loan agreement if the borrower defaults on their loan resulting in the sale of the asset via a suitable exit route (for example, private sale or auction). Depending on the type of asset and the current market conditions, the length of time to sell the asset may increase or decrease. We do not guarantee a specified timescale for the sale of the asset, nor that the sale will return the full capital and interest due to you.
Please view our due diligence procedures to find out more by clicking here.
Warning: Your capital is at higher risk than holding money on deposit. You may lose some or all of the money that you invest. You will not have access to the Financial Services Compensation Scheme (FSCS). Please refer to the ‘Statistics’ page which sets out our expected and actual default rates in order to make an informed lending decision with an appreciation of the specific nature and risks of investing via our platform. We conduct checks on our lenders and borrowers to reduce the risk posed when using our platform, please refer to our page ‘Lenders’ for more information.
Changes within the economic climate can have a direct effect on the market in which we offer secured loans. The personal asset and property market can both be affected when there is a wider change in the economy. If the value of the security falls, the borrower may struggle to meet their obligations towards repaying their debt.
We try to minimise this risk by offering Lenders different lending opportunities secured against a variety of assets. All loans secured on assets are capped at 70% LTV. For property loans, we take a first legal charge registered at the Land Registry. Connective Lending also operates a ‘Tranche’ model that divides a Borrower’s loan into three separate tranches. The tranches have separate LTV’s and repayment ranking (also known as a ‘Priority Ranking’) as set out in our Terms and Conditions. To find out more about our tranche facility, click here.
The opportunity to commit a financial crime is ever apparent in society and within the P2P lending environment. However, to mitigate such risk before allowing a Borrower to proceed with a loan, we make certain identity and credit checks to minimise the risk of fraud.
Portfolio Investment Risk
As with any investment portfolio, we recommend that Lenders spread their risk when investing in loans on our platform to ensure it meets the notion of many-to-one. You should never fund the full amount of a loan tranche. Lenders should diversify by investing their money across a range of loans, tranches and assets. However, we also recommend P2P platforms make-up a percentage of your investment portfolio to prevent overexposure. You should only commit funds you are able to financially contend with the risk of loss.
We do not offer our lenders a 'Provision Fund' like other platforms, as all our loans are secured against assets which act as your security in the event something goes wrong. We feel it is far better not to pass on any cost in operating such funds to our lenders.
The interest we pay on your investment is gross; no tax is deducted at source by P2P lending platforms. If you are an individual you should declare any interest or gains to HM Revenue & Customs (HMRC). Our Lenders are responsible for the payment of any tax due of them to HMRC. The amount of income tax payable is dependent on the individual circumstances and your marginal rate.
If you are in any doubt about your tax position, please speak to your accountant or to an adviser.
In the unlikely event, Connective Lending becomes insolvent or stops trading, it could possibly present some risks to you if loan agreements are not administered. As an FCA regulated firm, we are required to take appropriate measures to protect Lenders’ monies through the following steps:
• All monies belonging to our customers, including those which are not lent, are kept in a segregated client money account with Barclays Bank plc. These funds are held according to the FCA’s Client Money Rules. They are completely separate from Connective Lending’s own money and cannot be used for our own business purpose, nor do they form part of our assets.
• The loan agreements entered into on your behalf by us, would still stand and be “ring-fenced”, if Connective Lending enters administration. In this event, all Lenders' loans would be unaffected and the loan repayment from borrowers’ would be administered as usual. Any fees/debts that are required to be settled would be done so by the administrator from the admin fees due to Connective Lending from loans.
As a regulated firm, we have developed a wind-down plan approved by the FCA. Connective Lending has a fully-funded plan administer in-house, to be implemented if certain triggers and indicators required us to. This plan ensures a smooth wind-down of the business, should it ever be required.
We ensure that the plan the firm has chosen to use to wind-down can be executed while minimising risks to our stakeholders and providing the best possible outcome.
Our wind-down plan is a living document and is reviewed continuously to ensure it reflects the changes within the business and regulations.
Is it right for you?
Not all investment products will meet your criteria. You should consider if our lending platform is right for you and if you have the necessary experience and knowledge in order to understand the financial risk, and that they meet your appetite to risk.