To help you understand the risks involved when investing in Crowdfunding Bonds on PeerPower, please read the following risk summary.
1. The need for diversification when you invest
Diversification involves spreading your money across different types of investments with different risks to reduce your overall risk. However, it will not lessen all types of risk.
Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via PeerPower and should balance this with safer, more liquid investments.
2. Risks when investing in Crowdfunding Bonds
With Crowdfunding Bonds, you receive regular payments from the issuing company (the
“Issuer”) until maturity. Before investing, you must read and agree to the prospectus for each Crowdfunding Bond as these contain the exact terms and conditions, including repayment time between investors and the Issuer. It is important to understand that Crowdfunding Bond Issuers are solely responsible for their financial status and consequently their ability to make repayment. PeerPower does not issue the Crowdfunding Bonds listed on the PeerPower platform and is not responsible for their performance. Crowdfunding Bonds represent a high degree of risk and you should be aware of some of the specific risks involved in investing in them
3. Loss of investment and interest payments
Crowdfunding Bond Issuers, like all businesses, are vulnerable to financial difficulty and investing in Crowdfunding Bonds may involve significant risk of default. In the event of an Issuer being unable or unwilling to meet payments, it is likely that you may lose all, or part, of your initial investment and receive no outstanding or future interest payments. If a business you invest in fails, neither the company you invest in nor PeerPower will pay you back your investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk.
Crowdfunding Bonds are not insured by a third party nor are they protected by any governmental authority. This means that if the Issuer becomes insolvent, investors could lose some or all of their money.
4. Lack of liquidity
Liquidity is the ease with which you can sell your investments to a third party after you have purchased them. Investments in Crowdfunding Bonds through PeerPower should be viewed as a long term and illiquid investment
5. Unsecured investment
Unless otherwise set out in the prospectus, Crowdfunding Bonds are typically an unsecured obligation of the Issuer, meaning there is no security over the property or assets of the Issuer supporting the repayment of your investment. This means that if an Issuer fails, it is unlikely that an investor will have their initial investment or outstanding interest payments returned to them because there is no security over any remaining Assets.
6. Early call risk
The Issuer has the right to repay you your money at any time prior to the formal repayment date. Your investment may be materially curtailed because of this.
7. Liquidation event
If a Debt Crowdfunding Issuer falls into financial difficulty and goes out of business, other creditors and debt holders with seniority – including administrators, employees who are owed wages, banks, and secured debtors - will be compensated first. This means it is unlikely Debt Crowdfunding investors will have their initial investment or outstanding interest payments returned to them after higher ranked creditors are compensated.
8. Interest rate and inflation risks
Crowdfunding Bonds pay interest at a fixed rate rather than by reference to an underlying index. Accordingly, you should note that a rise in interest rates may adversely affect the relative returns that Crowdfunding Bonds offer. Further, inflation may reduce the real value of the returns over time.