Understanding Defaults

Why it happens

Shaun avatar
Written by Shaun
Updated over a week ago

Payment delays and defaults are the investment risk associated with debt investment, especially in the SME lending space. 

The business landscape is often times unpredictable. Delays in receivables, loss of revenue and other factors that may be outside of the issuer’s control can result in delays in payments and even default.

There is a positive correlation between the amount of risk and potential for return, as the risk appetite of each Investor defers, the result of each individual’s portfolio will be different. A higher risk investment has a higher potential for profit but also a potential for a greater loss.

What is a default?

A default occurs when: 

  • A Business Term Financing note is delayed 90 days past the due date

  • An Accounts Receivable Financing note is delayed 60 days past the due date

  • An Accounts Payable Financing note is delayed 60 days past the due date

What is Funding Societies' default rate?

Our default rate is published in our statistics page.

Are investment losses incurred from investing via Funding Societies covered by Capital Market Compensation Fund?

No. Any losses incurred from investing with Funding Societies are not covered under the Capital Market Compensation Fund.

What can I do to mitigate risks against default?

Diversify, diversify, diversify. Never invest in a single Note more than what you are not prepared to lose. While all financing applications undergo a thorough credit assessment, there are always unexpected business circumstances that can lead to adverse events, unpredictable at the time of underwriting. 

Understanding the risks involved and how to mitigate it is important for every investor. 

Here are some steps you can take to diversify your portfolio.

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