Peer to Peer lending is a new form of finance, using money from many people (a crowd) to generate a loan. There are some platforms that offer greater security by asking from borrowers a form of security, such as collateral such as deeds to a property or a baskets of shares in listed companies as security for the cash loan.

www.assetzcapital.co.uk is an example of this type of lending.

Here is a hypothetical example of how Peer to Peer secured lending works:

A company called Martlesham Industries, needs £100,000 for a new business venture. The owner of the Martlesham Industries, called Mr. Heath owns a house in the postcode of IP5 (Ipswich, Suffolk) worth £300,000 and has no mortgage on his this property, and has the deeds to the house from HM Land Registry.

Goes to a bank for a loan, the bank says no, as they do not want to lend to a small business.

So decides to see if a peer to peer lender can get him the £100,000 loan. The peer to peer lender undertakes some due diligence into Martlesham Industries.

The peer to peer lender says to Mr. Heath they will ask there lender community, made up creditworthy folks such as Mr. D. Launders, Mr P. Graham, Mr. M. Stonebridge, Mr. A. Karim, Mr.M.Hans, Mr I Dufour, etc to see if they can generate the loan.

The peer to peer lender then runs an auction, and money is pledge by the lender community. 2000 good lenders offer £50 each in an auction, [2000 x £50 = £100,000]

The auction closes, all £100,000 is accumulated from the lenders (the lenders each win the auction) and £100,000 now sits with the peer to peer lender The peer to peer lender now go back to Mr Heath (the owner of Martlesham Industries) and tell him they have the £100,000.

Before they release the £100,000 cash, the peer to peer lender want security for the loan, incase Martlesham Industries fails in the future and they can get the £100,000 back for the lender community.

Mr.Heath offers his house as security, and hands over the deeds to his house to The peer to peer lender. The peer to peer lender check no one else is laying claim to Mr Heath’s  house. This of course is important to secure the lenders money, and this takes a little bit of time, perhaps 3-4 weeks. In the meantime, the lenders are earning NO interest. They are waiting.

Once Due Diligence is done, and the peer to peer lender finds that  Mr. Heath is a decent man, they issue the cash to Martlesham Industries, that is known as loan draw down,  and then Martlesham Industries puts the money to work in the business, and makes interest payments, meeting all loans obligations to the peer to peer lender, who then give the cash to the lenders. Simples.