Baltic

Estonia, Latvia, Lithuania

Experiences with Setting up a Company in Estonia for the Purpose of Investing in Bondora P2P Lending

wiseclerk 9 Comments

This is an interview with Austrian investor Bernd R. about the experiences he made when he created a company in Estonia to benefit from the advantages that investing as business on Bondora brings. Note that these are his personal experiences and should not be construed to be investment or tax advice. The circumstances for other investors will be different and investors should seek tax advice by qualified and certified tax advisors.

How did you get the idea to setup a company in Estonia for your Bondora investments?

I read a lot about Estonia – its business friendly environment, simple tax system, huge start-up culture and the efforts to make administration processes available online.

Setting up an investment vehicle in Estonia would allow me to combine an uncomplicated taxation system with the advantages of a legal entity and all that at low costs.

What are the main advantages when investing as a company rather than an individual on Bondora?

There are several advantages.

  • The corporate tax rate in Estonia is 0%. Only dividends are taxed with 20%. This means that your retained profits will generate additional profit. Double taxation agreements with your home country protect you from being taxed twice and usually limit the total taxation to the tax rate for dividends of your country of residence.
  • In Austria interest income of private loans is treated in a different way than regular interest income (e.g. from a bank saving account). Interest income of classic bank saving product are taxed with a 25% flat rate, “private loans” fall under progressive taxation. On-top income of a full-time employee is easily taxed with 43% till 50%. So depending on the individual situation the tax savings can be up to 25%.
  • Provisions for bad debts or write-offs reduce the taxation basis.
  • Profits and Losses of different activities can be consolidated, e.g. losses generated with stock trading can be consolidated with your Bondora interest earnings and reduce the taxation basis.

How does the tax situation improve in your specific case?

I reduced the tax rate by 25% compared to my individual tax rate.

In addition I will generate more profit in absolute numbers due to untaxed retained earnings invested and at the same time reduce the taxation basis with bad debt provisions. The impact of these 2 factors depend on the future default- and interest rate of my Bondora portfolio.

To setup the Estonian OÜ you used a company formation service. Did that require you to travel to Estonia?

No, it was not necessary. A power of attorney does the job. Continue reading →

International P2P Lending Services – Loan Volumes January 2015

wiseclerk 1 Comment
Most major services grew the originated loan volume in January. Prosper, like Lending Club before, no longer makes data available for the recent month.  Funding Circle passed the milestone of 500M GBP lent since inception, while Auxmoney crossed 150M EUR. I added Investly and Mintos. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.
Investors living in markets with no or limited choice of local p2p lending services can check this list of marketplaces open to international investors.


Table: P2P Lending Volumes in January 2015. Source: own research
Note that volumes have been converted from local currency to Euro for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

Mintos – P2P Loans Secured by Residential Real Estate

wiseclerk

In Latvia p2p lending service Mintos has publicly launched. All loans are secured against residential real estate owned by the Latvian borrowers. CEO Mārtiņš Å ulte told P2P-Banking.com: ‘We strongly believe that secured loans in our region and beyond offer much better risk/return matrix for investors. … We have raised 1 million Euro from a local venture capital fund. That has allowed to put together a great team and build the product. Our immediate future plans are to expand to other geographies on the borrowing side as well as test other types of secured loans. On the investing side we are already open to all European Union countries and Norway and Switzerland. We are constantly improving our product and putting daily updates as we go by taking into account investor suggestions and ideas so that we can deliver great user experience.’.

Actually Mintos started accepting borrowers and making loans in September already. Mintos prefinanced all loans and now the investors can invest into these prefunded loans. Due to regulation reasons, Mintos will continue to make all loans, before investors bid on them. CEO Mārtiņš Å ulte added: ‘… we [will keep] 5% of each loan on our books to align our interests with those of investors.’.


Chart: Cumulative loan originations by Mintos

As said all loans are secured by real estate and all contracts with borrowers are signed before a notary, which eliminates the risk of identity fraud. Typcial interest rates range from 12% to 19% with loan amounts between 1,000 and 100,000 Euro (average now is about 8,000 Euro).Loan terms are from 3 months to 120 months.

Investing at Mintos – my test step by step

The minimum invest is 10 EUR per loan. Mintos charges investors a 2% annual loan servicing fee based on the outstanding principal.

Naturally I wanted to test the service myself before writing this initial review. It took only 2 minutes to register. I then transfered a small amount via SEPA transfer which – as SEPA is pretty fast – was credited 2 days later to my Mintos account.

There are currently 62 loan listings open for bidding. There are filters allowing investors to narrow the list they want to look at and the list can be sorted by clicking on the column headings. Bids can be made directly from the overview table or the investor clicks through to the loan details view. Continue reading →

International P2P Lending Services – Loan Volumes December 2014

wiseclerk
Several p2p lending marketplaces managed to grow the loan originations in December despite the Christmas season. Especially Prosper had a record month.  I added one more service. I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.
Investors living in markets with no or limited choice of local p2p lending services can check this list of marketplaces open to international investors.


Table: P2P Lending Volumes in December 2014. Source: own research
Note that volumes have been converted from local currency to Euro for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

Review of My Bondora Loan Portfolio After Q4/2014

wiseclerk 8 Comments

In October 2012 I started p2p lending at Bondora. Since then I periodically wrote on my experiences – you can read my last report here. Since the start I did deposit 14,000 Euro (approx. 17,000 US$). My portfolio is very diversified. Most loan parts I hold are for loan terms between 36 and 60 months. Together the loans add up to 19,528 Euro outstanding principal. Loans in the value of 2,158 Euro are overdue, meaning they (partly) missed one or two repayments. 1,853 Euro principal is stuck in loans that are more than 60 days late. I already received 10,316 Euro in repaid principal back – this figures includes loans Bondora cancelled before payout. I reinvested all repayments.


Chart 1: Screenshot of loan status

At the moment I have 280 Euro in bids in open market listings and 3 Euro cash available.


Chart 2: Screenshot of account balance

Return on Invest

Currently Isepankur shows my ROI to be over 27.56%. In my own calculations, using XIRR in Excel, assuming that 30% of my 60+days overdue and 15% of my overdue loans will not be recovered, my ROI calculations result in 25.0%. Continue reading →

Bondora Ratings Create a Single Eurozone Lending Marketplace

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This is a guest post by Pärtel Tomberg, CEO of Bondora.

This month we started the roll-out of Bondora Ratings, a loan application rating system based on the proprietary credit scoring model, with the aim to bring better predictability and consistency of the returns for investors active on Bondora platform.

Our initial aim for developing a credit scoring model was to bring the best banking practices to peer lending. Banks might have failed at providing people with affordable credits, but they have done a few things right, such as developing strong credit scoring models, that have helped them generate premium returns for their investors. With Bondora Ratings we are bringing credit scoring model to individual investors so they could maximize their returns in the same way banks do.

Being a platform that facilitates the exchange between lenders and borrowers, we believe it is our responsibility to bring the best practices, such as credit scoring, to peer lending; thus, making it an effective, efficient and mutually beneficial process for both parties. Eventually, Bondora Ratings will allow credible borrowers get a better rate for a loan, while investors will receive a predictable return level.

On top of bringing banking practices to peer lending, we saw a need for a simple, transparent and unified way to represent the risks and potential returns associated with a particular loan. Until recently, our investors used their own sophisticated models to evaluate the risks and plan their investments at Bondora. We have supported the initiative by offering a wide range of filters and providing extensive data export sets, and we will continue to support those investors in the future by providing a Trading API.

However, as the platform grows, we see an increasing inflow of investors that do not have a need or desire to engage into extensive number crunching. The historic performance of peer lending platforms, and Bondora in particular, indicates that peer lending provides premium returns compared to other assets classes and investors want a simple and easy way to earn those premium returns. Continue reading →