Wednesday, March 23, 2016

Lending Club for Puerto Rico

Puerto Rico needs a peer to peer lending platform and it seems that there could be a great source of investment for such a platform.

Peer-to-peer lenders like Prosper and Lending Club run online platforms that can quickly and automatically match borrowers seeking a loan to an investor willing to provide the funds for that loan at an attractive interest rate.  

In Puerto Rico the Act 22 community is a high net worth group with incentives to generate Puerto Rico sourced interest and dividends.  If you hold an Act 22 tax decree, Puerto Rico sourced interest and dividends are tax free.  However, there are not very many safe Puerto Rican investments these days. The Puerto Rican economy is struggling and it seems to me that increasing the availability of funds to individuals and entrepreneurs in Puerto Rico could help improve the economy here.

The two leading p2p lending companies, Prosper and The Lending Club, do not offer services in Puerto Rico. I did find that Peerform does lend in Puerto Rico, so at least the market is being served.

I did ask support at The Lending Club if there was a way to restrict my loans to Puerto Rico, and got this response:

To answer your question though, we don’t lend in PR. However, you should review the prospectus – you’re earning interest from Lending Club notes, not the underlying borrower, so location would not matter. The borrower is not paying you directly.

There are probably reasons for having the payments come from LC notes, not the underlying borrower. To tap into the Act 22 funds, this issue could be solved by having the interest payments come from an Puerto Rican company. It wouldn't need to come directly from borrowers.

I wonder if there is a way to test this idea by creating a Puerto Rican company that is in the business of making loans only in PR. What are the regulatory hurdles that need to be overcome? How big is the market?

I currently have funds invested with The Lending Club and I'm making over 8%. How great would it be if investors in Puerto Rico could get 8% tax free and local borrowers could have access to funds more easily and more cheaply than other alternatives?

Here's hoping someone will create The Lending Club for Puerto Rico. I would certainly be interested in investing.


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