Please read this section carefully. It discloses the key risks to which you may be exposed when undertaking peer-to-peer business lending. There may be other general risks or risks specifically relevant to individual business lenders or borrowers to which you are exposed and which will be in addition to this general risk warning.
Peer-to-Peer business lending
Peer-to-peer business lending through ThinCats Australia involves you lending your capital to one or more businesses in return for a fixed rate of interest, which you have agreed at the time of the lending commitment. Remember, you are lending to a business and therefore your capital is at risk and ongoing interest payments are not assured. If the business defaults on capital or interest payments, you might not recover all or some of your capital and costs from the borrower or any guarantor.
There is no pooling with other lenders. There is no escrow fund to help reduce losses. A lender will not be able to recover a loss from ThinCats Australia, Sponsors or from other lenders.
If the borrower defaults on several loans made through our Platform, any amounts recovered by ThinCats Australia Nominees Pty Ltd (TCAN) will be applied proportionally across all outstanding loans by reference to the capital outstanding.
Note: It may prove impossible to recover all or part of the loan even if business assets are held as security (in your favour) on that loan. You should be prepared to lose all or any part of the amount you lend.
Although the rate of interest which a business borrower has committed to is fixed at the outset of the loan, it is possible that financial difficulties later faced by the business borrower might be accommodated by that loan’s commercial terms being amended (with agreement between a lender and a borrower). This means you might be faced with the choice of accepting a lower rate of interest in order to have greater certainty that your capital will be repaid.
Your loans are made to Australian SMEs and the borrower’s ability to repay the loan might be adversely affected if there is a dramatic downturn in the Australian economy or in the economic sector or geographical location in which they are based. The viability and sustainability of SMEs’ business models is of course fundamental to the level of risk that they may default on interest or capital repayments.
None of the ThinCats entities and Sponsors are responsible for assessing these risks or assuring a lender of the borrower’s capacity to repay its borrowing.
Interest rates risk
As with any fixed term and fixed rate of interest loan there is a risk that interest rates in the market could increase before the end of the committed term of a loan, which would mean that you would not be able to move your capital into a higher interest bearing investment until the maturity of your loan on the platform. Conversely, if interest rates decrease, loans may be repaid early by the borrower impacting original return expectations.
Since ThinCats Australia does not provide any financial advice or recommendations, we would recommend that you take independent advice before committing your funds to ensure that you fully understand the risks, and are satisfied that peer-to-peer lending is appropriate for you, and meets your needs and personal financial circumstances.
Loan Agreement Terms
One of the benefits of the Platform is the mandatory use of a specific form of Loan Agreement, so the prospective borrower and lenders bid on the basis of known contractual terms. Conversely, this carries risks such as:
- The lender does not choose the contractual terms and may later require, or agree to, different terms (but may later agree to vary the commercial terms – see “Borrower Refinancing”).
- The lender cannot get the benefits of their own legal adviser negotiating the contractual terms.
None of the ThinCats entities and the Sponsors are responsible for advising you on the loan agreement terms or their enforceability, so you have the risks arising out of enforcing a loan agreement in the Australian legal context.
Loan Enforcement by ThinCats
One of the benefits of the Platform is that TCAN is primarily responsible for enforcing loans if there is a default. This also brings risks to lenders, such as decisions being made by TCAN (as security trustee) in its discretion; decisions being made for the interests of Lenders generally; decisions made on the costs of enforcement and the timing and reasons for deciding if, how and when to seek recovery, or to compromise a debt or to stop recovery action.
Although ThinCats Australia may introduce a secondary market facility in the future to provide an opportunity for lenders to sell their loans before maturity, there is no assurance that the facility will be introduced and maintained or that a lender will be able to sell the loan at all, or at a price which they believe to be fair value. There is also the possibility that if there is a problem or uncertainty relating to that loan it cannot be traded on the secondary market until the situation has been resolved satisfactorily (in the reasonable opinion of ThinCats Australia).
ThinCats Australia insolvency
If ThinCats Australia ceases trading due to it going insolvent it would present some risk to you in that it would no longer be administering borrower repayments back to a lender’s account. In case of such an event, TCAN, a separate nominee company, will arrange an orderly winding down of all outstanding loans.