Platforms like Prosper have brought the P2P lending model “into the spotlight,” according to an update from YieldStreet, a multi-asset alternative investment platform that’s focused on reducing friction and offering “previously unattainable” access to alternatives for millions of consumers.
YieldStreet writes in a blog post that (naturally) many people just getting started on their investment journey “might be curious as to what it’s all about, and how it differs from the asset-based alternative investment model of Yieldstreet.”
The firm has provided a look at the strategy and mechanisms behind P2P lending platforms, as well as how they “compare to Yieldstreet, in order to help you decide which model might be the better fit for your individual portfolio.”
As explained by the firm, P2P lending is an alternative method for “acquiring or providing a loan, allowing borrowers to seek funding from individual investors rather than traditional financial institutions.”
For investors, P2P may be a good way to “observe higher-than-usual returns on simple cash investments, and it can provide borrowers with access to loans that they might have difficulty securing from a conventional bank.”
The majority of P2P platforms share “a similar overall model,” YieldStreet explains.
Borrowers are able to sign-up and complete an online loan application, and after being approved and “assigned an interest rate—typically based on an assessment of their credit history—they can review various offers from interested investors and ultimately receive their desired loan.”
After the loan is accepted, borrowers are “responsible for making incremental payments to satisfy the principal amount of the loan plus interest,” the YieldStreet team explained.
As noted by the firm, investing with a P2P platform has the “advantage of producing relatively high returns when compared with other investments or traditional savings accounts, and investors could potentially observe returns exceeding 10%.”
P2P platforms also give investors “control over how they invest their money, which can be advantageous for confident investors who want to diversify their portfolio while maintaining authorship over their individual strategy.”
And because P2P loans “aren’t subject to the same ebbs and flows of publicly traded assets, they are considered less volatile than traditional investments in the stock market,” the team at YieldStreet explains.
Because P2P investments are personal loans, there is “always the possibility of a borrower defaulting or missing payments,” the YieldStreet team clarified.
And considering that “many of these loans are unsecured, and the platforms aren’t covered by FDIC insurance, a default has the potential to be a large loss,” the company added.
Going on to explain how this compares to what Yieldstreet offers, the firm noted:
“Rather than funding personal loans, Yieldstreet provides investors with a diverse array of alternative investment opportunities, from multi-asset funds to individual equity offerings in everything from commercial real estate to art and consumer finance.”
According to the update, the main similarity between Yieldstreet and P2P lending platforms is that they both “provide the everyday investor with an alternative method for income generation; the main difference is that returns on investments with Yieldstreet are based on the value and performance of assets, rather than the predetermined interest rates of P2P loans.”
The team also mentioned that “minimum investments in Yieldstreet offerings range from $500 to $15K, with target returns ranging from 10-18% on most offerings.”
Investing with Yieldstreet comes with the “advantage of built-in portfolio diversification via access to private, multi-asset class funds that were previously only available to the top 1%,” the firm explained.
Investing in a Yieldstreet fund might be a good way to “generate income over time, and the variety of offerings gives investors flexibility regarding their individual risk appetites.”
The update further noted that Yieldstreet has options for accredited and non-accredited investors, and while “each opportunity comes with its own risk profile, Yieldstreet performs its own due diligence, providing investors with the transparency necessary to make an accurate assessment of all offerings.”
The company added:
“Although Yieldstreet does offer limited liquidity on certain investments, our platform might not be the best choice for investors who aren’t prepared to wait out the full duration before redeeming their returns. Additionally, while each offering is carefully crafted to benefit investors, Yieldstreet’s available offerings might be limited in comparison to other, more traditional investment platforms.”