Lenders earn interest by investing in loans that are secured against “investment grade” gold and silver bars. LBT takes effective control of the pledged gold and silver on behalf of lenders, and will sell it off if a borrower defaults on a repayment.
The pledged precious metals are stored in specialised bullion vaults in England and Hong Kong, operated by cash-handling company Loomis. Pledged bars must meet the standards of the London Bullion Marketing Association.
The maximum loan-to-value ratio on the platform is 65 per cent. LBT continuously monitors the LTV and will make a margin call if it rises to 75 per cent, meaning than the borrower will be required to pledge more collateral and/or partially repay the loan to bring the LTV back into line.
LBT’s founder, James Turk, previously founded and floated an online gold trading platform called Goldmoney. Now listed on the Toronto Stock Exchange, Goldmoney has a market cap of CAD$225m. Goldmoney is a shareholder in LBT, and Turk tells us that the platform will complement the services that Goldmoney already offers to its c. 1.5 million customers.
LBT has been operating as a business-to-business lending platform since December 2016, when it completed its first loan.
Turk, who is chairman of LBT, said that the authorisation process has taken 21 months.
“Lenders benefit, but so do borrowers because they can monetise their precious metals,” he said. “With LBT, borrowers and lenders interact without disclosing their names through online auctions that enable both parties to ‘lend & borrow’ at a mutually agreeable interest rate.”
These auctions may be initiated by both borrowers and lenders. Either borrowers list borrowing proposals, or lenders enter the conditions under which they would be willing to lend, with borrowers then bidding for the money.
The platform supports lending in five different currencies: GBP, EUR, USD, CAD and CHF. Its first loan was a £2m loan in GBP. Its second was a $5.25m deal in CAD.
Investors must invest a minimum of £5k to use the platform. The minimum loan size for business borrowers is £25,001, and £60,261 for individuals.
Peer-to-peer lending platforms in the UK must be fully authorised in order to offer an Innovative Finance ISA product to investors. There are now a decent number of fully authorised firms in the market, including (as of last week) the world’s original peer-to-peer lending platform Zopa.
LBT has said that the launch of its own IFISA is in the pipeline.