Automatically Investing Investor Funds
CL Loan and CL Marketplace provides investors a program that allows them to contribute small amounts of money at regular intervals. Funds are automatically deducted from the investors' checking or savings account to be invested in relevant applications.
The lender defines the criteria for investing in loan applications in terms of credit worthiness and tenure. The platform automatically invests the amount from an investor's account as and when it is available in investor's account. Along with automatic investment, the investor can continue to invest manually into any loan application.
The loan and marketplace application must be InFunding stage to be picked up for automatic investment.
Lending Criteria
The following criteria help the investor or the system to decide the type of loan application and the credit band category that the borrowers fall in to invest in:
Borrower Exposure Percentage or Borrower Exposure Amount
Borrower Exposure Percentage - This is the percentage of the amount in an investor's account declared by an investor, up to which to invest in all the loan applications of a particular borrower. For example, if an investor has $10,000 in the account and has declared the borrower exposure percentage as 50%, then a total of $5000 can be invested in all the loan applications of the particular borrower. The disadvantage of defining this criterion is that whenever there is an addition to the investor account, then the amount that can be invested also increases as per percentage defined in the Borrower Exposure Percentage. Hence, this percentage may need to be adjusted if only a specific amount needs to be invested.
For example, if the lender has brought in $500,000 and has set the Borrower Exposure Percentage to 1%, then every time a matched loan is listed, $5000 would be funded automatically. If the lender further bring $500,000, then the portfolio amount would go up to $10,000,000, and if he does not change this percentage, then the system will fund $10,000 automatically, instead of $5000. In such cases, the lender may want to reverse the funding.
Borrower Exposure Amount - This is the absolute amount declared by an investor, up to which they can invest in all the loan applications of a particular borrower. For example, if an investor has $10,000 in the account, and has declared the borrower exposure amount as $5000, a total of $5000 can be invested in all the loan applications of the particular borrower.
The advantage of defining a Borrower Exposure Amount is that the lender can enter an amount that will not change if the portfolio value changes.
For example, if the lender has brought in $500,000 and has set the Borrower Exposure Amount to $5000, then every time a matched loan is listed, $5000 would be funded automatically. The amount to be funded would not change even when the portfolio amount changes unless the Borrower Exposure Amount is changed.
Note:The investor can either define Borrower Exposure Percentage or Borrower Exposure Amount, and not both.
The Borrower Exposure Percentage or the Borrower Exposure Amount is defined for a borrower, and not for a loan application.
The following table depicts a scenario where an investor has invested the portfolio amount based on the borrower exposure percentage and the borrower exposure percentage is defined as 50%:
Portfolio Amount Available Borrower Borrower Exposure Percentage = 50% Borrower's Loan Application 1 Amount Borrower's Loan Application 2 Amount Amount Invested in Borrower's Loan Application 1 Amount Invested in Borrower's Loan Application 2 Total Invested Amount Remaining Portfolio Amount $10,000 Borrower 1 50% (50% of $10,000 = $5000) $5000 $5000 $5000 - $5000 $10,000-$5000 = $5000 $5000 Borrower 2 50%(50% of $5000 = $2500) $1000 $2000 $1000 $1500 $2500 $5000-$2500= $2500 Note:In the above table, we see that there are two different borrowers each having two different loan applications, and there is only one investor who has defined Borrower Exposure Percentage as 50% and is investing in various borrowers.
The following table depicts a scenario where an investor has invested the portfolio amount based on the borrower exposure amount and the borrower exposure amount is defined as 2000:
Portfolio Amount Available Borrower Borrower Exposure Amount = 2000 Borrower's Loan Application 1 Amount Borrower's Loan Application 2 Amount Amount Invested in Borrower's Loan Application 1 Amount Invested in Borrower's Loan Application 2 Total Invested Amount Remaining Portfolio Amount $10,000 Borrower 1 2000 $2000 $5000 $2000 - $2000 $10,000-$2000 = $8000 $8000 Borrower 2 2000 $1000 $3000 $1000 $1000 $2000 $8000-$2000= $6000 Note:In the above table, we see that there are two different borrowers each having two different loan applications, and there is only one investor who has defined Borrower Exposure Amount as 2000 and is investing in various borrowers.
Maximum Loan Term - This is the maximum time for which the investor wishes to invest. For example, if the investor specifies the maximum loan term as 24 months, then it cannot invest in any loan application having term more than 24 months.
- Credit Band Allocation Percentage - The investor can decide how much to invest in applications based on their credit worthiness. If the borrowers are divided into 3 different categories based on their credit worthiness (Credit band A, B, or C), then the investor can decide the percentage of total funds to invest in the different credit bands.
For example, you can wish to invest 60% portfolio amount into loan applications with Credit Band ‘A’ and 40% on Credit Band ‘C’ type
The Credit Band Allocation can be described as shown in the table below:
Credit Band
Percentage
A 60 B 0 C 40 Similarly, you may define a percentage of 100 for each credit band to expose your funds equally to investments in all credit bands.
Service Fee: The system charges a service fee to the investor based on the Lender Service Rate specified at the investor account level. If this is not specified, the service rate defined at the loan contract level is used.
Steps
To automatically invest the funds, you must enable the related custom settings. For information on setting up the Auto Invest functionality, refer to section Setting Up Auto Investment.