When we last visited my Lending Loop portfolio, I was doing approximately 9% annually from lending small businesses cash at exorbitant interest rates, which was pretty solid in my books.
Unfortunately, 2018 was not such a good year, although that should just be a one-off occurrence. Let’s take a closer look.
Lending Loop — 2016 vs. 2019
I first joined Lending Loop at the beginning of 2016. It then promptly ran into some regulatory issues and wasn’t really ready for business until late in the year. I stuck with them though, and by early 2017 I was up and lending.
The problem back then was a very poor selection of loans. Lending Loop had plenty of investors looking to earn some interest but very few companies looking to borrow. You really had no choice but fund everything that got offered.
As I previously mentioned, one of those loans did poorly, and it was finally officially written-off in 2018. The good news is the company did repay about 30% of the loan before defaulting, and the company is about a three hour drive away if I want to take out my frustrations on some of the owners’ personal property. If only I knew who they were. And I wasn’t a giant wuss.
When I first put cash into Lending Loop I simply invested 20% of the portfolio into every loan I liked. So this write-off turned out to be approximately 13% of the original portfolio. I’ve since invested more money, which reduced the write-off to approximately 4.5% of my portfolio.
So that hurt 2018 Lending Loop returns. And since the additional investment wasn’t made until the third quarter of 2018, my new investments haven’t really had a chance to add to the bottom line. So 2018 will go down as a losing year. I lost approximately 3% this year.
Don’t worry. I’m not
Lending Loop is way different than just a couple of years ago. The loan selection has improved exponentially.
Although there’s currently only three loans available to fund on the marketplace right now, there’s at least 10 that have raised all the allotted money in the last couple weeks alone. I used to get email notifications of new loans but I’ve turned them off because there were multiple loans being listed every day. It’s easy to build a diverse portfolio these days.
(Lending Loop also lets you auto-lend to any new loan on the platform. I like to be a little selective, so I haven’t turned that feature on. But it’s an easy way to automate diversification)
I’ve also tried to skew my portfolio a little bit to higher quality loans, with some success. Here’s what my current portfolio looks like today:
About 40% of my portfolio is in A and B graded loans, and C+ has 17% of the portfolio too. I’m trying to get some exposure to the riskier part of the market (and those 18-22% yields) while still skewing towards better credit quality.
(Many of the D-rated loans I have feature good earnings and solid balance sheets. Some of them I’d even categorize as being mispriced. We’ll see how they do over time.)
Right now my current annual yield is a little over 14%. Remember Lending Loop takes fees out of that, so I’m looking at approximately a 12% total annual return (assuming no write-offs).
Should you join Lending Loop?
I’m not sweating my 2018 Lending Loop loss. My portfolio went from five names to 27. It’s much more diversified these days, and is protected from the odd loan blowing up.
Besides, it’s fun to scrutinize the loans on the marketplace. There’s enough selection I can avoid certain borrowers for the dumbest reasons. It’s basically like a financial version of Tinder.
And Lending Loop does a nice job of providing the info needed to easily scrutinize your portfolio. They do a nice job with all that stuff.
I’m a big fan and continue to be a big fan. I’ll probably add funds to my Lending Loop account sometime in 2019.
I think y’all should join me. If you are interested, you can use my referral code (just click on this link) and we’ll both get a $25 bonus once you lend $1,500 to businesses.