Technological developments in the financial space are threatening to shut down traditional financial institutions, among them banks, or at least those that won’t adapt. However, it is not an easy feat as banks have been the go-to institutions for all financial needs. Some of them have hundreds of years in operation. So, how will this be possible?
The first is peer-to-peer lending. It is the fastest growing segment in the financial lending market, and for a good reason. The flexibility and convenience it offers for borrowers and the high-interest rates for investors. It is projected to grow at over 51.5% compound annual growth rate from 2016 to 2022 when it will be worth over $460 bn according to an Allied Market Research. The other trend has to be cryptocurrencies, such as Bitcoin and Ethereum, which are slowly gaining support from users over banks. Because of the financial freedom they have over centralized financial systems and their ability to operate without a single point of failure.
Bitbond is one of the peer-to-peer lenders that have allowed the lending and borrowing of loans in Bitcoin. It uses the Bitcoin blockchain to facilitate international transfer of fiat loans as well. Learn more about the platform in detail in this Bitbond review.
What is Bitbond?
Bitbond is a global peer-to-peer lending marketplace for small business loans that is mostly known for using Bitcoin to make cross border lending economically feasible. The platform also works as an originator and connects borrowers to lenders around the world. You can borrow up to $25,000 to help grow your business, hire staff, buy inventory to cope with demand or even expand marketing. All this for free and with no credit inquiry or obligations. Loans are approved in under 24 hours.
Bitbond was founded in 2013, it is based in Berlin, Germany. If the statistics on the website are anything to go by, the platform is one of the largest in the bitcoin space with 177,397 registered users, over 1800 investors and 3,298 originated loans worth over $15,670,118 cumulatively over the last six years.
According to the Company’s co-founder Radislav Albrecht, he decided to create the platform to make peer to peer lending global and enable people to borrow and lend each other money from any place in the world. This was after he came across the idea as he worked as a consultant on banking related projects. However, this would be expensive as there is no common currency across the world. The fees would be too much, including transaction fees, currency exchange rates and other bank charges. The company settled on Bitcoin.
Using the Bitcoin blockchain, Bitbond is able to avoid the fees associated with the SWIFT network, which most of the world’s banking institutions rely on to make international transactions. Bitbond transfers the loan amount using Bitcoin to the borrower and it is then converted to the country’s currency as soon as the transaction is processed. However, that doesn’t mean Bitbond is the fastest platform. The start-up received its BaFin Licence in 2016 that allows it to conduct asset brokerage independently of banks.
Bitbond Pros and Cons
- Potentially high interests
- Well designed and easy to navigate
- No bank account required – this enables small businesses in areas where it’s hard to access bank accounts to borrow
- The investor has full control on what loans he wants to invest in
- Auto invest tool to enable hands-off investing
- The platform is fully regulated and licensed by BaFin, The Federal Financial Supervisory Authority, the German financial regulator
- Lower and fully transparent fees
- No minimum credit score – you can get a loan regardless of your financial situation
- Information that shows the borrower’s risk is provided
- You cannot borrow large amounts – Bitbond only offers loans up to $25,000
- Quite low liquidity – investments are locked up for the duration of the loan
- Risks of the BTC exchange are discharged on the investor
- Investors could lose their money as the peer to peer loans face the risk of default
- Bitbond does not fund the loans directly – instead, it connects the borrowers to the investors
- 1% to 3% one-time origination fees
- Loans are not guaranteed especially to borrowers who are low rated
Getting started on Bitbond
To invest or borrow on the platform, you will need to create an online account on the site. Click on the login button then click on ‘sign in’. Ensure the form appears on ‘bitbond.com’ and not ‘bitbondsto.com’ as the latter is the site for the Bitbond token (BB1). Select if you want to get a business loan or to invest or earn as an affiliate.
Enter your first and last name on the form, a working phone number, email and set a password for your account. Accept the terms of service and click ‘Join Now’. The first step is to verify your email. Click the link in the message sent to your email to activate your account.
The second step is to collect your personal details. These include, your gender, name (first and last, again), date of birth, country of birth, citizenship and home address. Click next to continue.
The third and final step requires you to verify your identity via an online video session. To do this, you will need to have a stable internet connection, a good camera and a working microphone. You will also need to have a passport or national ID card to verify your identity. The video call will last for up to 10 minutes.
How Bitbond works
The company provides a platform through which the borrowers can access loans and investors can lend through. Instead of using originators, Bitbond originates loans on their own through the platform. This gives them more control over who is eligible. The borrowers go through a creditworthiness assessment that includes access to their seller or business accounts such as eBay, PayPal, Amazon or bank accounts to verify their income. Bitbond will then use algorithms and manual reviews to determine the borrower’s credit rating.
The loans are then listed on the platform for lenders to fund within a 14-day auction period. If the loan is fully funded, the auction ends. If it is not, it is originated at the funded amount provided it is equal or more than 60% of the requested amount. If it does not reach the 60% threshold, your bids will be refunded to your account.
The minimum you can invest in a single loan is BTC 0.01 and all loans are divided into BTC 0.01 increments. Borrowers can pay their loans early without any fees or charges however; the total interest and fees owed remain as per the loan contract.
Applying for a loan on Bitbond
Bitbond claims that applying for a loan on the platform takes less than 15 minutes. Most of the borrowers are small businesses borrowing between $1000 and $25,000. The registration is similar to the investor’s, the only difference is you have to select ‘borrow’. Then you will be able to start your application. You will be asked about how much you would like to borrow, your revenue for the last 12 months, and how long your business has been in operation.
The details required are the same for an investor’s account, including gender, name, date of birth, citizenship, and country of residence. However, you will be required to provide your financial details including the company details, currency, turnover for the last 12 months, outstanding debts and overdraft on your account.
The third step requires you to verify your trading history by uploading the required documents. To determine how much you can borrow, Bitbond will also require you to connect your online business accounts such as selling platforms such as eBay or Amazon, PayPal or social media accounts. The platform will ask for read-only access. Provide contact details and submit your application.
Bitbond will review your request within 24 hours and email you after completing your rating. You will, however, be required to verify your identity before requesting a loan. Fill in the details of your loan request (currency, amount, purpose), confirm the information is correct and publish it. You can describe the purpose of the loan in 1,000 words or less. Lenders will then have 14 days to fund your request. You can cancel the loan request as long as it is not fully funded.
The loans can be assigned either one of the following purposes by the borrower
- Education – these are loans to fund college or degrees, school, PHD, apprenticeship and training
- Renovation – to cover the costs of renovation of house, apartments or other fixed asset repairs.
- Investment – these are loans for the purchase of long term assets
- Refinancing – loans seeking funds to refinance overdrafts, credit cards or other existing loans
- Working capital – funds for the purchase of stock, materials, supplies and other commodities
Bitbond will credit your loan amount to your account within 6 hours of being funded.
Investing in Bitbond
You can choose to invest manually or automatically. You can deposit funds to your account by connecting your bank account (SEPA region only) and using the Bit4coin integration as the platform does not take direct deposits from your account, or, you can use your bitcoin wallet. You can spend your incoming funds after the deposit has three or more confirmations.
To invest, simply browse the listings and select the loan that meets your returns threshold and your risk appetite. The loan details provide all the important details of the loan including an identifier that helps you identify a particular loan, interest rate (per year), term, purpose and repayment type. You can also view the up to 1,000-word project description entered by the borrower.
The borrower section on the loan listing states information about the person requesting the loan. It has details including an identifier, to identify the borrower without stating their name, rating – this indicates the creditworthiness of the borrower based on information evaluated by Bitbond. Monthly income after tax to show the borrower’s ability to repay the loan, the industry they work in, region (plus the flag), loan history, accounts connected (eBay, PayPal) and payment history in case of repeat borrowers.
The minimum bid you can place on a loan is 0.01 BTC. The loan will become active if it is either, fully funded within the 14 days auction. Or, it is 60% or more funded by the expiry of the auction period. If only less than 60% is funded, your bids will be refunded.
The platform offers an auto invest tool for investors who prefer a hands-off investing. It allows you to automate the investment process by setting your preferred parameters. You can set the base currencies, ratings, region and investment amounts. To set up the tool, add funds to your auto invest account, enable auto invest and set your preferences. Update Auto invest profile so the changes can take effect.
The auto invest algorithm follows their ‘5 principles of bitcoin lending’ where for every bid:
- It allocates only up to 4% of your defined amount into one loan
- Invests only up to 20% of the requested loan amount
- Invests a maximum of 55% of the defined loan amount into one of the three rating categories you select.
- Does not bid on loans you have already invested in manually
Types of loans
Bitcoin loans – these are the loans that use the bitcoin as the base currency. The borrower pays a fixed number of bitcoins every month.
Exchange rate pegged loans – these are loans that use the US dollar or Euro as the underlying currency. All values are calculated in the base currency and the values remain the same throughout the loan regardless of the exchange rate between the bitcoin and the dollar. However, the payments are still conducted in bitcoins.
Small business loans – borrowers can request up to $25,000 to grow their businesses. Borrowers apply and are approved within 24 hours. The loans take up to 5 days to be funded after which the funds are available to the borrower.
The platform also has dedicated programs for eBay, Shopify and Amazon sellers. This allows borrowers to get instant credit scores by linking their seller accounts to Bitbond. The loans have a 24-hour approval and monthly interests start from 1% per month.
How much can you earn on Bitbond
How much you earn on the platform depends on the amount you invest and the risk you are willing to take. The rates for the loans on the platform range from 10% to 35% per annum. According to the platform, in a well-diversified portfolio with over 100 loans, the expected return is 13% p.a after bad debt. The average return is 10% per year.
The platform prides itself in charging some of the lowest fees in the peer-to-peer lending space. For borrowers, interest on loans start at 1% per month. There is also a one-time 2 – 3% origination fee and 0.01% late payment interest of the overdue amount per day.
For lenders, Bitbond keeps a certain percentage for each repayment (principal + interest) as a repayment fee for loan servicing.
- 3-month term loan – 0.5% of the repayment amount
- 6-month term loan – 0.7% of the repayment amount
- 12-month term loan – 1.5% of the repayment amount
Bitbond review verdict
Bitbond is one of the first regulated bitcoin platforms, one that interestingly has managed to thrive in a field where its competitors have failed. It promises decent returns by industry standards, 13% expected return is attractive to many investors.
Borrowers can also access instant small business loans at low rates. Especially those without bank accounts or cannot access bank loans. However, the platform suffers from low loan volume and lenders must put in mind the risks of peer-to-peer lending such as defaults. The platform is worth checking out, considering it has managed to stay stable over that time.
Yes, Bitbond is a fully regulated financial service operating under the license from BaFin, the German Financial Regulator. Yes, you can repay your loan early without any additional fees or charges. However, this does not mean that your total interest will decrease or loan fees. This remains constant as already agreed in the loan contract. The platform provides the borrower a grace period of 3 days from the due date. After that, you will be required to pay late payment interest at five percentage points above the base rate on the overdue amount on a p.a basis. Borrowers with business accounts showing at least 12 months track record have the opportunity of being funded instantly. Applicants with a more modest financial record can get financing within 14 days. Bitbond does not withhold any taxes from your returns. However, your earnings are taxed according to your local laws. The loans are rated in six categories according to their personal risk. The platform is regulated by the German financial regulator, BaFin. In case it goes under, the functionality of repaying loans would still be available, therefore, existing investments would be served as normal.
A- For the lowest default probability
B- For low default probability
C- For mid-low default probability
D- For mid-high default probability
E- For high default probability
F- For the highest default or non-measurable default probability due to lack of information.
Yes, Bitbond is a fully regulated financial service operating under the license from BaFin, the German Financial Regulator.
Yes, you can repay your loan early without any additional fees or charges. However, this does not mean that your total interest will decrease or loan fees. This remains constant as already agreed in the loan contract.
The platform provides the borrower a grace period of 3 days from the due date. After that, you will be required to pay late payment interest at five percentage points above the base rate on the overdue amount on a p.a basis.
Borrowers with business accounts showing at least 12 months track record have the opportunity of being funded instantly. Applicants with a more modest financial record can get financing within 14 days.
Bitbond does not withhold any taxes from your returns. However, your earnings are taxed according to your local laws.
The loans are rated in six categories according to their personal risk.
The platform is regulated by the German financial regulator, BaFin. In case it goes under, the functionality of repaying loans would still be available, therefore, existing investments would be served as normal.