Glossary

Accredited investors are individuals or entities that meet certain criteria set by regulatory agencies, such as the Securities and Exchange Commission (SEC) in the United States. These criteria are intended to ensure that accredited investors have the financial knowledge and resources to understand and bear the risks of investing in certain types of financial instruments.

In the United States, an individual must have a net worth of at least $1 million (excluding their primary residence) or an annual income of at least $200,000 ($300,000 for joint income) to be considered an accredited investor. Entities, such as banks, insurance companies, and certain types of trusts, may also qualify as accredited investors.

Accredited investors are often able to invest in higher-risk, higher-reward opportunities that may not be available to non-accredited investors. For example, they may be able to invest in private placements, hedge funds, and venture capital funds, which may not be registered with the SEC and may not be subject to the same level of regulatory oversight as publicly traded securities.

An agricultural loan is a financial product provided to farmers, ranchers, and other individuals or organizations involved in the agricultural industry. Agricultural loans may be used for a variety of purposes, such as purchasing land, equipment, and livestock, or financing agricultural projects and operations. These loans may be offered by banks, credit unions, and other financial institutions, as well as government agencies and non-profit organizations. The terms of an agricultural loan may vary depending on the borrower's specific needs and the lender's risk assessment. Agricultural loans can help farmers and ranchers to expand and improve their operations.

Alternative investments are financial assets that differ from traditional investments such as stocks, bonds, and cash. These investments may include assets such as real estate, private equity, hedge funds, commodities, and collectibles. Alternative investments may offer the potential for higher returns, but they also typically involve a higher level of risk and may not be suitable for all investors. Alternative investments may be less liquid and may be more difficult to value than traditional investments, making them more suitable for long-term investment strategies. Investors should carefully consider their financial goals and risk tolerance before deciding whether to include alternative investments in their portfolio.

Anti-Money Laundering (AML) refers to laws, regulations, and procedures that are designed to prevent the use of the financial system to facilitate illegal activities, such as money laundering, terrorist financing, and fraud. AML regulations typically require financial institutions and other organizations to implement certain controls and procedures, such as customer due diligence and suspicious activity reporting, to detect and prevent the use of their services for illicit purposes. AML regulations may also require organizations to maintain records and make them available to regulatory authorities for review. The goal of AML regulations is to protect the integrity of the financial system and prevent it from being used to support illegal activities.

An appropriateness test is a process used by financial professionals to determine whether a financial product or investment is suitable for a particular client. The appropriateness test typically involves evaluating the client's financial situation, including their investment objectives, risk tolerance, financial resources, and other relevant factors. The financial professional will use this information to determine whether the product or investment is appropriate for the client, given their specific needs and circumstances. The appropriateness test is an important part of the financial advice process, as it helps to ensure that clients are provided with financial products and investments that are suitable for their specific needs and goals.

Auto-invest is a feature offered by some financial institutions that allows investors to automate their investment decisions. With auto-invest, investors can set up a system that automatically invests their money according to predetermined criteria, such as the asset class, risk level, and investment period. For example, an investor may set up an auto-invest system that automatically invests a certain amount of money in a diversified portfolio of stocks and bonds each month. Auto-invest can be a useful tool for investors who want to simplify their investment process and save time, as it allows them to set up a long-term investment plan and automatically execute it without having to make individual investment decisions on a regular basis.

Bad debt refers to a debt that is unlikely to be collected. Bad debts may occur when a borrower is unable to pay their debts due to financial hardship, bankruptcy, or other circumstances. For lenders, bad debt represents a loss, as they are unlikely to recover the money they lent to the borrower. Lenders may write off bad debts as a loss on their financial statements. In some cases, lenders may attempt to collect on bad debts through legal action, such as by suing the borrower or garnishing their wages. However, the chances of successfully recovering the debt may be low in these situations.

Balance sheet lending refers to a type of lending in which a financial institution provides a loan using its own funds, rather than borrowing the money from another source. With balance sheet lending, the financial institution takes on the credit risk associated with the loan and is responsible for any losses that may result from the borrower's inability to make their required payments. Balance sheet lending can be a useful way for financial institutions to provide credit to borrowers, as it allows them to have more control over the terms of the loan and the risk associated with it. However, balance sheet lending also carries the risk of losses if the borrower defaults on the loan, which can impact the financial institution's financial performance. Learn more about balance sheet lending and how it differs from peer-to-peer lending in our explanatory guide to balance sheet lending.

Blockchain is a decentralized, digital database that uses cryptography to record and verify transactions. It is made up of a series of interconnected blocks that contain a record of multiple transactions. Each block is linked to the previous block, forming a chain of blocks. Blockchain technology is often used to create secure, transparent, and tamper-proof records of transactions, such as financial transactions or legal agreements. Because it is decentralized, it does not rely on a central authority to verify transactions, making it more secure and resistant to tampering. Blockchain technology has the potential to revolutionize various industries, including finance, supply chain management, and voting systems.

A bridge loan is a short-term loan that is used to "bridge the gap" between two financial transactions. It is typically used when a borrower needs to purchase a new property before they have sold their current property, or when a borrower needs to secure temporary financing until they can secure a more permanent source of financing. Bridge loans are typically secured by the borrower's current property and may be used to pay off the mortgage on the current property or to fund the purchase of the new property. Bridge loans may have higher interest rates and fees than more permanent forms of financing, as they are intended to be a short-term solution.

A bullet loan is a type of loan that requires the borrower to make a single, large payment at the end of the loan term to pay off the entire outstanding balance. Bullet loans may have a fixed or variable interest rate, and the borrower may be required to make interest-only payments during the loan term. Bullet loans may be used for a variety of purposes, such as financing the purchase of a large asset or refinancing existing debt. Bullet loans may be attractive to borrowers who expect to have a large influx of cash at the end of the loan term, such as through the sale of a business or the receipt of a large inheritance. However, the borrower must be prepared to make the large final payment in order to avoid defaulting on the loan.

Business investing refers to the practice of investing in businesses, either by purchasing ownership stakes in the form of stocks or by providing capital in exchange for a share of the profits. Business investing can take many forms, including buying shares of publicly traded companies, investing in private companies, or starting a new business. Business investing carries a high level of risk, as the success or failure of the business can have a significant impact on the value of the investment. Business investing can also be time-consuming and requires a thorough understanding of the business and its financials. However, it can also offer the potential for high returns if the business is successful.

A business loan is a financial product provided by a lender to a business for the purpose of financing the business's operations, expansion, or other needs. Business loans may be offered by banks, credit unions, and other financial institutions, as well as government agencies and non-profit organizations. The terms of a business loan may vary depending on the lender, the purpose of the loan, and the creditworthiness and financial situation of the business. Business loans may be secured or unsecured, and may require the business to provide collateral or meet certain credit and financial criteria. Business loans can help businesses to fund their operations and growth, but they also carry the risk of default if the business is unable to make the required payments.

Buy-to-let refers to the practice of purchasing a property with the intention of renting it out to tenants. Buy-to-let investments can be a source of passive income for the owner and may also offer the potential for capital appreciation if the value of the property increases over time. However, buy-to-let investments also carry risks, such as the possibility of vacancies and the need to maintain and repair the property. Buy-to-let investors may need to have a good credit score and financial resources in order to qualify for a mortgage and may also need to consider factors such as location, rental demand, and property management.

Buy-to-sell refers to the practice of purchasing a property with the intention of reselling it for a profit. Buy-to-sell investors may look for properties that are undervalued or in need of repair and then make improvements to increase the value of the property before reselling it. The goal of buy-to-sell investing is to make a profit by buying low and selling high. This can be a risky strategy, as the value of the property may not increase as expected, and the investor may need to hold the property for an extended period of time in order to realize a profit. Buy-to-sell investors may also need to consider factors such as location, market conditions, and the cost of repairs and improvements.

A buyback guarantee is a form of investor protection and will usually allow you to recover your capital in case of a borrower default. It is essentially a promise of the loan originator to repurchase your investment into a loan, should the repayment of the loan exceed a certain number of days overdue (usually 30, 60 or 90). A buyback guarantee can cover only the loan principal or the principal plus the accrued interest. Note that a buyback guarantee doesn’t eliminate risk; it simply moves it to the loan originator. It’s also usually just a promise and not a legal obligation. Even though loan originators tend to hold on to it under “normal market conditions”, they might cease to honour their promise if some crisis hits and the number of defaults increases beyond their capacity to repurchase them all.

Crypto marketplace lending involves the use of blockchain technology to facilitate debt investments in the crypto world. It can involve investing in loans in fiat currencies, secured by cryptocurrency collateral (centralised crypto lending - Ce-Fi) or pooling assets in an application governed by code (smart contracts), which generates loans and automates yield payments (decentralised crypto lending - De-Fi). Both models, in principle, serve the same purpose - to provide borrowers with liquidity without requiring them to sell off their underlying crypto assets. Read more about crypto lending models in our Ce-Fi vs De-Fi comparison.

Default refers to the failure to meet the terms of a loan agreement, typically by not making required payments on time. When a borrower defaults on a loan, it can have serious consequences, including damaging their credit score, making it more difficult to obtain future loans, and potentially leading to legal action or the seizure of collateral used to secure the loan. Default can occur for a variety of reasons, such as financial hardship or a change in circumstances that makes it difficult for the borrower to afford their required payments. Lenders may use strategies such as requiring collateral and credit scoring to try to minimize the risk of default on a loan.

A default rate is the percentage of borrowers who fail to make their required payments on a debt or loan. When a borrower defaults, it means they have not met the terms of their loan agreement, usually by not making their required payments on time. Default rates are used to assess the creditworthiness of a borrower and the risk associated with lending money to them. Factors that can contribute to a high default rate include a low credit score, a history of financial problems, and unfavorable loan terms such as high interest rates. Lenders can use strategies such as requiring collateral and using credit scoring systems to assess the risk of default.

Due diligence is an investigation into the financial records before entering into a transaction with a party. In P2P lending, platforms usually perform due diligence on loan originators upon accepting them on the site or during periodical reviews (in indirect lending structures) or on borrowers and/or their projects before making deals available to investors (direct lending). Read more about how the process is conducted in our guest post on due diligence in peer-to-peer lending.

Equity crowdfunding relates to activities where individuals or institutions invest in an unlisted early-stage business (typically a start-up) or a business venture (such as a buy-to-let real estate project or a litigation process) in exchange for shares in that company or venture. Explore our complete equity crowdfunding guide to find out more.

Funding volume is the amount of distributed investments during a given period. The funding volume covers investments made by investors and paid out to fundraisers & borrowers, which means only fully funded and paid out project volumes count. Funds committed by investors to projects still open or not paid out to the fundraisers are not included. At P2PMarketData, we track total funding volumes for the online alternative investment and fundraising industry. We track the volumes on individual platform level to provide volumes per investment type, funding model, currency, and many other metrics.

An institutional investor, or an institutional lender, is an entity that invests large amounts of pooled money on behalf of its clients, customers, members, or shareholders. Endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies are institutional investors. They tend to enjoy fewer protective regulations than retail investors (it is assumed they are more knowledgeable and better able to protect themselves) and, often, preferential treatment (e.g., lower transaction fees). They are the “big fish” of financial markets, and the large transactions they make can have a notable effect on the financial markets as a whole. An increasing number of P2P lending sites, especially those focused on business lending, are either dominated by institutional investors or entirely unavailable for retail investors.

Marketplace lending (also referred to as debt crowdfunding, crowdlending, or FinTech credit) is the practice of lending money to individuals or businesses through online services (marketplace lending platforms) that match lenders with borrowers. This form of lending allows individuals to borrow directly from other individuals, cutting out the financial institution as the middleman. The platform provides an online space where investors and borrowers meet, offers secure payment channels, and conducts some due diligence on borrowers, loans, and/or loan originators. It operates at much lower costs than a traditional bank (with its physical branches and assets, a large crowd of employees, and high reporting and regulatory burden). This cost-saving enables the lenders to earn higher returns, while borrowers can (in some cases) borrow money at lower interest rates than traditional bank offerings. The platform sustains its business operations and profits from small fees charged on borrowers and, less often, on lenders.

Peer-to-Peer (P2P) lending, also known as social lending, crowdlending, or debt-based crowdfunding involves lending money to individuals or businesses through online services (P2P lending platforms) that match lenders with borrowers. Understood broadly, it can involve any online platform mediating between lenders and borrowers online. At P2PMarketData, we follow a broad definition of the term peer-to-peer lending that includes all online lending investment platforms which allow investors to lend money to borrowers directly on loan level or fractionally in debt notes.

A real estate token is like real estate equity in the way that it represents a share of the SPV or company owning the property, with a crucial difference that it’s encoded on a blockchain.

A retail investor is an individual investor who buys and sells securities for their own account, rather than for a financial institution or other professional organization. Retail investors may include individuals who invest on their own or through a brokerage account, mutual fund, or other investment vehicle. Retail investors typically have smaller investment portfolios and may not have the same level of expertise or resources as professional investors. Retail investors may be subject to different regulatory requirements and may face different risks than professional investors. Retail investors may also have different investment objectives and risk tolerances than professional investors.