As you are no doubt aware, The Route – Finance, via its Private Debt Platform, provides opportunities for its Members to lend directly to companies that have realisable assets available to pledge as security. Once a loan reaches the end of its specified term, one of these three events occurs:
- The loan capital plus interest is repaid on time and in full; or
- The loan capital plus interest is repaid after either an agreed short extension or an agreed new loan term; or
- The loan capital plus interest is repaid via exercise of the security and foreclosure i.e. selling the pledged assets*
(*This happens rarely with only one Secured Loan being foreclosed in the 5 years since inception.)
As an example of Option 2, this week a loan repaid after agreed extensions and agreed new loan terms. Please see the information below for the return generated over the whole term of the loan, assuming a participation level of £75,000 (the average participation amount for loans on the Platform):
- Participation amount: £ 75,000
- Total return: £ 146,508
- Profit: £ 71,508
- Total return: 95.34%
- Annualised return: 25.38%^
(^ As the interest is added once at the end of the loan term, the interest has been shown on a simple not compound basis.)
- The Route Members who participated in this loan were able to generate a total return of 95.34% over a period of 3.75 years.
- Of course, not every loan will run for as long as this but it illustrates the returns possible for these Secured Loans where initial loan interest and penalty interest combine.
- Often borrowers require more time to deliver their business plans and repay the loan and thus apply for either a short term extension or a new loan term.
- For both a short term extension and a new loan term, The Route- Finance, as security trustee, will be contracted to conduct a new due diligence assessment of the loan including the revised exit and the assets pledged as security.