SoMoLend values the opinions of our lenders and borrowers on our platform. In an effort to better understand our lenders’ investing needs and opinions of our site we distributed an online survey in May 2013 to our registered lenders. The objective of the survey was to better understand the demographics of lenders on the site, understand the reasons why lenders did or did not lend, understand motivators for lending and the criteria for selecting business loans and usability of the platform. This insight will help us uncover areas for improvement to enhance the user experience.
Below we have shared some interesting findings related to lender motivation and criteria.
1. The top three borrower criteria for lenders were: 1) management experience, 2) risk level, and 3) the industry. The relationship with the business owner, and the loan amount followed closely behind in terms of importance to the lender. Lenders were less concerned with the number of years in business, the funding type and the state the business operates within.
The survey indicated the top three reasons for funding a loan on SoMoLend would be to: 1) Diversify portfolio 2) ROI 3) Support the local economy. Paying a reasonable investment portfolio fee was not much of a motivation for lenders to sign up on the site. Lenders were motivated by their passion for crowdfunding as a reason for signing up on the site. Several of the respondents indicated that they were just “kicking the tires” as motivation for signing up on the site.
The survey indicated that almost 30% of respondents are looking to loan between $501- $1,000 per year to a single borrower. This is followed by 21.6% of the respondents who indicated that they are looking to loan $250 or less per year to a single borrower. The response rate of 10.8% was the same for those looking to loan between $1,001-$2,500 and $2,501-$5,000 per year to a single borrower. See the chart below to view all of the responses.
4. The top three factors when deciding to lend money to a borrower are: 1) Confidence level in the business’s ability to pay back the loan, 2) Financial statements, and 3) Interest rate offer. These were closely followed by a business plan and the reason the borrower needs the funding. The borrower credit score and their ability to easily communicate directly with the business borrower were of concern but not as a high of a priority for the lender. Lenders were not as concerned with customer endorsements, the endorsements of other lenders for the business or their relationship/knowledge of the owner.
5. A typical lender on our site is looking for a yearly net ROI of 6-10% as indicated by almost 50% of the respondents. Nearly, 30% of respondents were looking for a yearly net ROI of 11-15%. The survey showed that 13.5% indicated they were looking for a return of 16- 20%. The remaining respondents indicated that 5.4% desired a return of 1-5% and 2.7% desired a return of more than 25%.
Overall, the survey was successful in helping us understand the needs of our lenders and how we can enhance their experience. For example, we gained insight into how important the management team is in the lending decision so we are considering ways to present this information differently. The survey also indicated that many of the respondents are anxious for crowdfunding regulations to become implemented by the SEC.