Debt investment framework for P2P platforms

Tom Malley FCCATom Malley FCCA

Tom Malley FCCA

If you're considering debt investment over a P2P platform or some forms of private credit this framework may help.

I'm not Jonny Big Bananas. I'm documenting my background to show what has contributed to my opinions. I DON'T consider myself an EXPERT.

✅ I worked for a P2P business lender for two years. In the final year, I was on their credit committee.

✅ I spent much of last year researching the secured business debt market.

✅ I've spoken with hundreds of non-bank lenders.

✅ I've owned a loan brokerage for the last 18 months.

✅ I'm a fellow of the Association of Chartered Certified Accountants.

✅ I've spoken with scores of insolvency and restructuring professionals while building BusinessWell. A great insight into the wrong end of this market.

✅ I have the advantage of LAM, the tech behind BorrowingWell and BusinessWell.

I'm going to give you five perspectives:

The spread
The credit case
The business case
Publically available information

These topics cover a good chunk of the fundamentals but not everything.

The Spread

The difference between what the borrower pays the service provider and what the service provider pays you.



You are not entering a perfect competition market.

They don't all operate the same. Some service providers are low margin high fixed cost operations. That means they need a good volume of borrowers to be cash generative. With that comes pressure to get deals done with other people's money (OPM).

The biggest banana skin is the principal-agent problem.

Are they investing alongside you?

Will they support loss-making operations?

Have they ever refunded lenders on bad debt?

Will they take over struggling borrowers and service the loan?

All of the above are honourable and show commitment. The question is, will they continue to do so?

UNDERSTAND the value the spread gives you. It may seem high vs the interest you receive. That is JUSTIFIED for the value-adding service providers. A difference of 1%-2% is peanuts if it prevents capital loss.

The principal-agent problem exists for many types of transactions. It's nothing new. Just make sure you get VALUE. Look for experienced teams with track records.

Business case

Why does the borrower need the money? That will tell you a lot.

Are they REACTING to a tax bill they weren't expecting?

Are they refinancing existing debt? If so, why can't they repay as planned? How many times have they refinanced already?

Are they PROACTIVELY planning the purchase of fixed assets that will drive growth and improve efficiency?

Three business cases. Which would you say indicates the best management team? Which would you say has the best business case?

Two guiding rules:

  • If you don't understand the moving parts don't go near the deal. It shouldn't be that hard to explain.
  • Always think about the principal-agent problem when considering refinances.

Looking at the BUSINESS CASE in isolation is pointless. The CREDIT CASE must be viewed in tandem AND IS WAY MORE IMPORTANT.

Credit case

If the $hit hits the fan, how quickly can you get ALL OF YOUR CAPITAL BACK? That's the credit case for the loan.

Is the asset valuation DEFENSIVE?

Is there a ready secondary market?

Do the borrowing directors give personal guarantees (PG) worth giving?

If the loan security isn't liquid you aren't getting repaid quickly. If the loan security requires servicing (think WIP for solicitors or accountants), who will be doing and paying for that? The directors who defaulted? How will they be motivated?

Having a liquid and defensively valued asset as loan security can make all the difference.

Some of the qualities I like to see from potential borrowers are:

  • No other debt.
  • Being proactive.
  • No HMRC arrears.
  • Good trading history.
  • Integrity, honesty, and openness.
  • An easily understood business model.
  • Simple group and ownership structures.
  • The ability to repay within the loan term.
  • Sufficient security (if the loan is secured).
  • Good reputations of owners and managers.
  • A well-produced information memorandum.
  • That the loan value is sufficient to execute the business case.
  • Historically cash generative and forecast to be cash generative.
  • That historically the business retained enough cash to meet its obligations.
  • An acceptable interest cover or satisfactory cash generation to loan service cover ratio.
  • Conversion of shareholder debt to equity, or willingness to subordinate shareholder debt.

Post loan issue:

  • Loan proceeds are spent on the stated purpose.
  • The business is reporting on time and meeting its targets and obligations.

Qualities I don't like to see from potential borrowers:

  • Loan stacking.
  • Complex groups.
  • High-risk activities.
  • A lack of organisation.
  • Complex intragroup trade.
  • Significant cash operations.
  • History of arrears with HMRC.
  • Complex ownership structures.
  • Historically late reporting (refinances).
  • Running out of cash due to poor planning (reactive).
  • Lack of communication with the lender (refinances).
  • Some sectors e.g. life sciences, arms manufacture, gambling.
  • The business or directors have a history of debt enforcement.
  • That post loan: financial performance and position are adverse vs forecast.
  • Multiple companies under common control with non-coterminous year ends.
  • The loan proceeds are deployed to support the lifestyle of the owners rather than a business reason.

Publically available information

Your lender will likely use software to perform background checks on potential borrowers. That should be part of their value-add.

You can use publically available information to SELECT YOUR SERVICE PROVIDER or review individual borrowing opportunities. Some examples are below:

  • Google.
  • Trustpilot.
  • Social media.
  • News articles.
  • BorrowingWell (FREE for your use case).

If you use specialist software, such as mine, you'll be able to look at the loan volume, track record and background of the vehicle and people you're considering using.

If you're not looking at their track record, you're not doing all you can to defend your wealth. As Gordon Gekko said 'a fool and his money are lucky enough to get together in the first place.'


You ain't swinging for 10xers in this part of your portfolio.



If you're not diversified, one small mistake can cost you. Consider CONCENTRATION risk from several perspectives. Here are a few to get you thinking:



Borrower count.

Sector and industry.

This article doesn't address everything you need to know.

I wrote it because there isn't much content on this topic from someone like mine's perspective.

I hope it helps. Always DYOR.