The projected return is an estimate of the annual return that a diversified investor could earn, after fees and bad debt but before tax, by lending to businesses through each of our lending options.
It shows the return a diversified in investor could expect to earn each year once all loans have repaid and recoveries have been received.
To calculate the return, we take the following, based on the risk band mix of the businesses we expect to be matched to investors using each lending option:
Gross interest rate
This is the annual gross interest rate, before fees and bad debt, that businesses pay to investors for the money they borrow.
Estimated bad debt rate
This is the annual percentage of loans, by principal amount, that we estimate will not be repaid back in the future. It includes the recoveries we estimate we will make on loans that have been defaulted.
1% annual servicing fee
Your projected return already includes the 1% annual servicing fee.
Calculating the projected return
The factors above are used to calculate the projected return for each lending option.
The projected return is given as a range to reflect that there is always an expected level of uncertainty when estimating future loan performance.
Your actual return may be higher or lower than the projected range
It’s important to understand that your actual return may be higher or lower than the projected range shown for your chosen lending option. This can be caused by factors such as:
- Actual performance may be higher or lower than projected - for example, more businesses may be unable to repay their loans if macroeconomic conditions were to change, such as during an economic downturn. In addition, the individual businesses you lend to may perform better or worse than projected.
- The number of businesses you lend to - it’s important to understand that you are lending to your own individual portfolio of loans and not everyone will earn the same projected return. As your personal projected return depends on the loans your funds are matched with, the more businesses you lend to the better our lending tool will be at matching your funds to achieve the projected returns shown. Lending to more businesses also helps you earn a more stable return by reducing the impact of bad debt.
- Your actual return will change over time - the projected return is the annual return you could earn once all loans have repaid and recoveries have been received from defaulted loans. It’s important to remember that bad debts do not typically occur evenly over the life of a group of loans, and it often takes time for recoveries to be made on defaulted loans. Therefore your return is likely to change over time. You can read more about this here.
Remember, by lending to businesses your capital is at risk.
- Gross interest rates may change in the future which may impact your return.
- The projected return compounds interest and therefore assumes re-investment.
- The projected return does not include any amounts not lent to businesses.
- Past returns are not necessarily a guide to future returns, and by lending to businesses your capital is at risk.