Investing on P2P platforms. The main risks and securities
From the beginning, one of our primary business ambitions was to give people a fairer and more humane investment option. Thus, we can promise that regardless of net worth, everyone is treated fairly by hive5 because we want you to succeed. Nevertheless, the first thing that you should know, all investments are associated with a certain level of risk. Secondly, it's essential to understand those risks and the best practices to navigate any investment platform safely. To minimise the risk, our team offers a combination of securities. So, let's take a closer look at risks and securities that provide P2P platforms and, importantly, hive5.
Default risk
Generally speaking, one of the main P2P lending risks is that a borrower won't pay back the loan or take too long to pay it back. The consequences if it does differ by P2P lending platform. For that reason, hive5 and other platforms offer a buyback guarantee. It protects against losses and helps investors feel more confident about their funds. In other words, it is an agreement between the loan originator and the investor. However, not all P2P platforms offer this protection, and each is managed differently.
Our friendly advice would be that when investing in P2P lending, you should focus on loans with buyback guarantees or (and) business loans that are backed with collateral. A buyback guarantee means you will operate on a four-party business model comprising a borrower, investor, the P2P platform, and the loan originator. For that reason, the whole operation is more complex than the three-party business model without an independent loan originator.
Buyback at hive5
For instance, at hive5, all loan originators must buy back the loan by 60 days after the loan payment due date. Not only loan principal but also accrued interest shall be repaid in full. In addition, all our "Hive finance" group entities have a corporate policy to allocate at least 10% of equity into the provision funds, which shall be used as a buffer to secure our investors' funds in case our Loan originator faces some financial difficulties. Additionally, our own skin in the game makes us different from the other P2P companies.
It is necessary to note that each borrower that applies for a loan from our loan originators goes through an in-depth credit risk scoring procedure to receive the loan. At hive5, you can invest only in loans that have gone through strict credit scoring procedures.
The transparency of the business
If you want to invest on any P2P platform, it's essential to research the company and business owners you are considering. It would be best to look first at the team behind the marketplace and how well they've covered possible risks. Only trust a company which communicates about the CEO and business owners.
Hive5 team are full-time investors, so we know how vital is businesses' transparency and reliability when choosing an investment platform. We are always ready to provide all the necessary tools to manage investment risk and advice you during the investment journey. Moreover, the whole team invest on our platform too. Thus, as you are, we are investors and want to make profitable investments.
Always diversify
If you want to minimise the risk of losing invested funds, rule number one is: always diversify your investments. To achieve a diversified portfolio, invest a small amount of money in loans from different countries and types of loans and choose a few different investment platforms.
We have launched the platform by allowing investors to choose from consumer and business loans. That is only the beginning; soon enough, we will introduce many more secured business lending products. P2P lending is an excellent tool to fight inflation and save money; also, it is a perfect short-term investment if you know the risks and how to mitigate them.