Before proceeding, it’s important to understand the potential risks associated with peer-to-peer business lending. While we’ll cover the main risks here, please note that there could be additional risks specific to your role as a lender or borrower.
Peer-To-Peer Business Lending
Peer-to-peer business lending through Zool Capital involves you lending your capital to one or more businesses in return for a fixed rate of interest, which you have agreed to 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 guaranteed. 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, no escrow fund to help reduce losses, and a lender will not be able to recover a loss from Zool Capital, Sponsors, or other lenders.
If the borrower defaults on several loans made through our Platform, any amounts recovered by Zool Capital 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.
Borrower Refinancing
Although the rate of interest that 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.
Economic Risk
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, the economic sector, or the geographical location in which they are based. Of course, the viability and sustainability of SMEs’ business models are fundamental to the level of risk that they may default on interest or capital repayments.
None of the Zool Capital entities and Referral Partners/Brokers 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 loan, there is a risk that interest rates in the market could increase before the end of the committed term. This 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.
Advice
Since Zool Capital does not provide financial advice or recommendations, we recommend that you seek 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 Zool Capital entities and the Referral Partners 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 Zool Capital
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 being made on the costs of enforcement, and the timing and reasons for deciding if, how, and when to seek recovery, compromise a debt, or stop recovery action.
