Secondary Market has arguably been the most awaited feature of the TFGcrowd platform for quite some time already. And finally - it's here! Available from today for you to check out and explore the superb possibilities that it provides. Here we would like to give you a brief insight into how it works and the benefits it presents for those willing to sell any of their investments and those looking to buy into some attractive deals.
How it Works
We have worked remarkably hard to make the process of offering a claim for sale and acquiring a claim on the Secondary Market as easy and seamless as possible for all the parties involved.
The sellers will simply have to pick from their list of investments a loan that they are willing to liquidate, decide on the price for which they are comfortable to part with it, accept all the necessary documentation and voila! it's on the Secondary Market for other investors to shop.
The active users of the TFGcrowd platform will all have access to a designated space within the portal, where all the claims on offer for sale will be accessible for review. Again - it will be as simple as picking an appealing investment option, accepting the relevant paperwork and the deed is done.
Money will automatically change hands, TFGcrowd will inform the borrower about the assignment of claim rights, and any repayments from there on will be made to the user, who has acquired the title to the claim rights.
Benefits & Risks for the Sellers
Here at TFGcrowd, we believe that planning is vital when it comes to sound investment strategies. But sometimes, life brings corrections even to the best-laid plans. Because financing agreements do not provide a possibility for an early exit from an investment before maturity, being caught off guard by an unexpected change in financial circumstances previously meant that there were no options for investors to liquidate issued loans.
The arrival of the Secondary Market changes that. Investors will now be able to offer to assign their claims against companies to which they have provided financing to other active users of the TFGcrowd platform in exchange for money. The key to a successful deal will be finding the right price at which to sell, as buyers on the Secondary Market will be looking for attractive deals that may not be available on the primary marketplace.
Similarly, Secondary Market may be an appealing option for investors willing to sell claims against borrowers, which are either late or have defaulted on repayments. Rather than waiting, when the borrower pays up or for the recovery process to conclude, investors will now be able to offer such claims at a discount to other investors, which are willing to wait and take on the increased risk for a higher prospective premium in the future.
It is essential to keep in mind that the Secondary Market's availability does not guarantee that any claim can and will be sold. Two factors, namely, time and price, play a crucial role in the process. An investor who needs to sell a claim fast will probably have to offer a sizable discount to raise fellow investors' interest. Similarly, an investor looking to recover a higher proportion of their outstanding claim may need to exercise considerable patience to find a suitable buyer and may need to be prepared to lower the set price.
Benefits & Risks for the Buyers
The Secondary Market offers investors access to investment opportunities that allow much higher possible returns than those on offer on the primary market. There are three main reasons for the higher returns.
First, the original investors' circumstances may have changed, requiring them to withdraw funds at short notice. Therefore, they will be willing to offer a premium to anyone willing to buy the claim from them quickly.
A second reason may be that the borrower runs behind on repayments, and the original investor views this as an increased risk that the borrower may default. They will then be willing to sell the claim at a lower price than it is worth to avoid the risk of suffering from the borrower's default.
Finally, there may also be claims on sale against borrowers, which have defaulted on repayments altogether, and a recovery procedure is either underway or is expected to be initiated. In these cases, the high returns mirror the high risks involved in recovering the loans.
The buyers should always keep in mind that by buying the claim rights, they are also taking upon themselves all the risks associated with the underlying loans. The seller passes on all the risks with all the rights to the buyer upon concluding the assignment agreement. In many instances, the claims on offer for sale on the Secondary Market will be riskier than their counterparts sold on the primary market, hence the reward of higher returns.
Although very rare in practice, in theory, there may also be claims on sale on the Secondary Market for a price that exceeds the actual projected return from the claim. Before buying any loans, you should, therefore, always check whether the future payments are higher than the asking price to avoid the risk of buying into an unprofitable deal.
Keep in mind the risks that buying and selling on the Secondary Market entail and enjoy this latest extension to our portal functionality. We are looking forward to receiving feedback about your experiences on the TFGcrowd Secondary Market.