Wednesday, July 24, 2013

Lending Activities

Before my current job, I was a loan officer for a cash lending chain.  I liked helping families out by generating loans for those who really needed them.  I also liked the business model of the company and liked the fact that it was a true alternative to the local banks, who always control the wealth. 

The job itself was very risky.  We would hear neighboring branches getting robbed at gun-point and I would sit at my desk wondering if we would be next....  I also had to go to people's houses that were behind on payments to 'remind' them or collect cash payments.  After the second gun got pulled on me ~ I quit.  I couldn't justify the risk. 

The business however, still flourished.  Even with 6-9% default rates the company I worked for was generating cash hand over fist, and is still in operation today.  I always wanted to run my own loans company but knew it would be nearly impossible with all the hoops to jump through with licensing and legal details etc.  I discovered the idea of "Peer Lending" late last year and thought I could make it work after all.

The problem ~ is I live in Texas, which does not allow me to engage in sites such as Lending Club etc.  Recently I found a way around this through trading notes on a secondary platform.  I like the idea of taking banks out of the picture letting investors directly lend to customers.  One thing I like is all investments are split up into 25$ increments and given out to different loans helping investors 'diversify' a bit so one default will not ruin a portfolio.  I am always looking for new income streams and figure I would give this a shot with 100$ seed investment to see how it plays out.  Like with all investments, I never just dive right into something.  For tax implications and just seeing how the system works, I figure this would be enough to get me going with 4 notes.  The average monthly payments will be added to the "My Big Financial Picture" Page.

-Decent promising returns
-Relatively low default rates
-Low capital required to start.

-One default on 4 notes will kill all likely returns
-No liquidity (loans are up to 5 years so cash is locked-in unless notes are re-sold on the secondary platform)
-Tax implications???

Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. Hi IE,

    I actually live in Texas myself so I have to trade notes on the secondary market with Lending Tree. I never mentioned it on my blog because I didn't know if I would keep it up. The worst part about it is the limited selection and the terrible interface for sorting loans. Until they redo their system where I can search through the loans using criteria I'm looking for I've taken my money out. I do wish you luck though and I think the concept is great. I'll look for your updates on this.

    1. AAI i agree about the terrible interface for sorting notes out. But I believe the companies do this intentionally to prevent all of the good deals being swept up nearly instantly. If that were to happen the secondary market would really be just a dumping ground for loans going bad.

  2. I did lending club for awhile and because i wasnt making enough and had enough networth I was doing the secondary market.

    I like the helping people aspect but I had maybe 20 notes and 1 default. That default wiped a lot out. I am sure # wise it would have been better if I had gone to the 100 note level.

    Their interface.... dear lord. I agree with you guys. Its terrible.

    1. I can already tell too that only having four notes it will take about 8-9 months to accumulate enough cash to purchase an additional note. I will probably be bored by then.

      I may put in an additional investment to get the ball rolling a bit quicker. Plus the blow of a default would be further mitigated.

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