Interview: Pertuity Direct Social Lending

In the current economic climate, it is becoming more difficult to get a loan. Personal loans and debt consolidation loans are harder to come by as lenders tighten their standards, even for those with good credit. This is why social lending — or P2P lending — is becoming so popular. It is possible to get loans from others, without the hassles of going through more traditional lending.

One company, Pertuity Direct, offers a rather interesting version of social lending. Recently, I spoke with Pertuity’s CEO Kim Muhota, as well as Charlie Schliebs, who is on the board for the associated National Retail Fund.The explained that Pertuity’s model is one of underwriting loans, and then packaging them into funds that investors can then earn a return with.

“With other person-to-person social lending, it can be tiring to go through all the profiles and decide who you should lend to,” Muhota says. “It puts the consumer in the place of a creditor. We actually take care of the lending part of things and the investor can choose to invest in a pool of loans.” He also touts the more secure nature of Pertuity’s system: “Your personal information is not made available to the investor. It is all taken care of with our backend loan writing and pricing structure.”

For those who are concerned about investing in funds comprised of pooled personal loans, Schliebs has this assurance: “Our loans are aimed at prime borrowers. There are two retail funds, one that has only borrowers with a credit score of above 720, and the other for a credit score of between 660 and 720. Additionally, these are regulated funds that work simply and transparently.”

Muhota says that the company is looking to expand its loan offerings — especially with regard to loan term length. For now, all loans to consumers are three year loans. “We also offer them at a fixed rate. For budget planning, especially from a debt management standpoint, this is very useful. You know that in three years you will be done, and you can budget the same amount for the entire term.” He also says that there are no prepayment penalties, so if you can pay off your loan sooner, you are not penalized.

Schliebs shares some of the fee structure for the retail funds — something that investors worry about. “Right now, total fees end up being a little under 2%. The funds are professionally managed by Gemini. However, as the funds grow, we expect the fees to decrease. There is also a loan servicing fee of about 1%.”

Finally, Muhota offers some insight into one of the more intersting aspects of this social lending structure. “You don’t have to look at profiles,” he says, “but you can if you want. We allow investors Pertuity bucks that they can “award” to borrowers whose stories they find compelling. These bucks translate into real money that the borrowers can use to lower the principal of their loans.”

At first glance, Pertuity Direct looks like it might be promising. I like the idea of being able to invest in funds with quality borrowers — as well as the fact that I don’t have to try and figure out who to give a loan to.

Also, this process takes away some of the guesswork from borrowers, who may be concerned that they don’t end up with full funding. With Pertuity, you are either approved for the loan, or you aren’t. Of course, the downside to that is that you won’t get even partial funding. And, of course, you have to have at least a FICO score of 660 to qualify.

With any investment — including (and maybe especially) social lending — it is important to recognize the risks. No matter how solid something may seem, you always run the risk of loss.

What do you think of the idea behind Pertuity Direct? Have you tried other social lending sites?