Marketplace lending is still a relatively underutilized borrowing and investing alternative in Australia.
As an investor, it's only natural you will have concerns about the safety of your money. We encourage you to learn as much as you can about marketplace lending and its associated risks. You can read more about marketplace lending on ASIC's MoneySmart website:
We also recommend you take independent financial advice before you make any major financial decision, including investing via our marketplace.
We have put together these FAQS to help you better understand the arrangement.
Explore the investment trends among Australian investors, and understand why a new approach is needed.
Who can register as an investor?
All individuals, Self Managed Super Funds (SMSFs), companies and/or trusts that we are satisfied meet the criteria of a wholesale investor as defined under the Corporations Act 2001 (Cth) can invest in this alternate asset class and fund borrowers through our marketplace.
You can find out more about wholesale investors by visiting the ASIC website and by contacting us on 1300 192 442 to confirm the requirements. We are open 9am to 5pm Monday to Friday (Sydney time) except public holidays. Or if you prefer, email us anytime.
No investor can be approved until they have supplied a valid Qualified Accountant's Certificate verifying their income/assets meet the wholesale investor criteria, or other information substantiating their professional investor status, and we are satisfied that they are eligible to invest
How do I invest through Zagga?
- Join our marketplace on an obligation-free basis
- Register with us as an investor
- Follow the process to complete your investor profile
- Once registered, we will send you electronic or mobile alerts as soon as there is a loan that matches your investment requirements
- After receiving the notification, you will be granted access to review the loan documentation
- Following your review, you may accept the investment to fund the full or a fraction of the loan amount, or opt-out of participating in the loan
Please note that all registered investors must have an Australian bank account and satisfy an identity check. This is to comply with Australia's Anti-Money Laundering and Counter-Terrorism Financing (AML-CTF) legislation.
What is the minimum investment?
The minimum investment in each loan is $100,000.
What is the maximum I can invest?
There is no maximum to the amount you can lend. By fractionalising all our investors' funds, you can fully fund a loan, or to participate across several loans to enable you to diversity your investments.
What are the non-disclosure provisions?
To enable investors to make informed decisions about the risk profile of a loan, we will provide matched investors with relevant information about a borrower's loan application. Prior to viewing this, investors must agree to an Investor Agreement which contains non-disclosure provisions. Under this Agreement, investors must not disclose information obtained through Zagga about any loan or borrower under any circumstances, to any third party.
The Agreement is completed by the investor as part of their registration process. No investor will be approved unless they have executed this agreement. We will strictly enforce this agreement.
We will not disclose the names of borrowers to any investor without the prior express consent of all borrowers.
How much will I know about the borrowers and their loan application?
Once we have matched and alerted you to a loan that meets your specified criteria, you will be able to log in to the document portal to view relevant loan information and supporting documents.
The borrowers' names will only be released with full consent from the borrowers. Their personal details such as residential address, telephone numbers, email address and place of work, are never released to investors.
Registered investors are bound by non-disclosure provisions, to not disclose any information about borrowers and their loans. Zagga takes this requirement very seriously and will take steps against any investor who breaches this. All investor activity on the portal is tracked and audit-trailed.
Contact details or any information that can identify borrowers or investors must not be asked for or exchanged. Parties must not attempt to contact each other or transact outside the marketplace.
Can I ask borrowers questions about their loan application?
To assist with investment decisions, matched investors can ask the borrowers questions relevant to their loan via the document portal on our website. We will forward the question to the borrower and convey the answer back to all matched investors via the website.
A borrower does not have to answer these, however, their loan is more likely to be funded if they do. Borrowers who are honest and open will be more attractive to investors than those who do not respond to questions. Questions asked to the borrowers and their responses, will be available to all investors to whom the loan has been matched, but not to anyone else.
Please note, when you ask a question it will not be displayed until the borrower answers the question. However, it will be recorded on the file as an unanswered question.
You must not ask for, or provide, any contact details or information that could be used to identify you or the borrower. Your account may be terminated if you do so. If you have concerns about any of the above, please contact us immediately on 1300 192 442.
What fees do I pay?
Investors are charged a Loan Management Fee of between 0.5% to 1.95% per annum of their fractional share of the outstanding principal balance on each loan. This fee is charged by Zagga for managing borrowers' repayments and administering accounts on behalf of the investors.
The Loan Management Fee is deducted monthly from borrower repayments. Please refer to our interest rates and fees.
Please note, we will be required to deduct non-resident withholding tax if you are not an Australian resident for tax purposes.
In some circumstances, including on redemption of a loan interest when an investor's capital has been fully or partly repaid, the Trustee may deduct other fees and costs from amounts otherwise payable to the investor in respect of their loan interest. For full details, refer to the Salient Features of the Trust and the Trust Deed.
What returns will I earn?
Your investor returns will be paid per the terms of the investment. You will be entitled to receive monthly distributions in the form of interest, or interest and principal, depending on the loan type you have opted into. This will be paid to you after we have deducted an ongoing monthly Loan Management Fee which is between 0.5 - 1.95% of your fractional share of the annual outstanding loan balance, and subject to the borrower not being in default or hardship relief.
Interest rates are set individually for each loan and are based on the Zagga Credit Assessment Score. This is calculated on a borrower's credit history, size of loan against value of the security property (LVR), quality of the security and other loan application information.
You can choose the loans which you believe suit your specific risk and return requirements. Generally, the riskier the loan, the higher the return. To mitigate the risk for our investors, all loans approved through us:
- are secured by a registered mortgage over real property
- have undergone a thorough credit assessment
- are to creditworthy borrowers who are not bankrupt or insolvent.
Please visit Investment rates and fees for more information.
Can I manage a loan myself?
Yes, but you must be the sole funder of the loan and for regulated loans you must hold an Australian Credit License authorising you to undertake that activity. If this is the case let us know and we will arrange for you to take over management of the loan.
Investors who manage their own loans do not pay a Loan Management Fee to Zagga. However, if you wish to use our loan management system and reporting, we will charge you a fee to be agreed based on the services you use.
Is there a minimum investment term?
Investments are for the duration of the loan or loans that you have opted into. Therefore, if you agree to fund a two-year loan, your money will be committed to the loan for the full duration, unless:
- the loan is repaid early
- the borrower defaults
- the borrower qualifies for hardship variations (only in the case of a loan to which the National Credit Code applies)
- or otherwise as may be provided under the terms of the Trust Deed.
You will be entitled to receive monthly repayments from borrowers for the term of the loan proportionate to the percentage of the loan you have invested in, and subject to the terms of the Trust Deed.
What is the duration of a loan?
Loan terms differ between loan types and can range from six months to five years. The loan term is disclosed in the loan application documents.
If you prefer certain loan terms, you may elect this at the time of completing your investor profile.
What are the risks?
All investments carry some degree of risk, and generally, higher rates of return are associated with higher risk of loss of capital invested or investment returns.
Before you make an investment decision it is important for you to identify your investment objectives and the level of risk that you are prepared to accept. Zagga provides a tool to assist you in determining your investment objectives and risk tolerance, however Zagga does not provide you with personal advice that any investment you make will be suitable for your personal circumstances.
When Zagga matches a loan to you, it is matched based on your specified preferences, and does not make any representation or guarantee that the investment is suitable for you or that it will meet your investment objectives. Therefore, we recommend you seek independent financial advice before making a decision to invest.
The significant risks in investing funds to be advanced under a loan include:
- Credit risk
The risk of loss arising from the failure of a borrower to repay some or all of the money they owe. Please note that borrowers under a loan to which the National Credit Code applies, may be eligible to apply for a variation to their loan on the grounds of hardship. This may impact the term of the loan and the rate of return for investors with exposure to that loan. You may find more information on hardship variations on the ASIC website.
- Borrower defaults
If a borrower defaults, there may be shortfalls where the sale proceeds of the security property are not sufficient to recover in full, the invested funds and costs incurred by the Trustee in enforcing or recovering the repayment of principal and interest under the relevant loan.
When a borrower defaults, the costs incurred by the Trustee, together with any loss of principal and/or interest payments due under the loan arising out of the borrower's default, will be borne by the investors who have a beneficial interest in that loan.
- On winding up of the Trust
After trust property has been realised and costs and other expenses have been deducted, if there is a negative dollar amount (shortfall) in the calculation of the entitlement of an investor to a distribution, the Trustee may ask the investor to pay such shortfall if the Trustee in its discretion, believes to do so is in the best interests of all of the Trust's investors, requiring the investor to have contributed more than the original principal invested.
- Term of investment and liquidity risk
Subject to the terms of the Trust Deed, once you have agreed to invest funds in respect of a particular loan, you are committed to the investment for the full duration of the loan term, which can range from six months to five years. Therefore, once exposed to a loan, your investment is essentially illiquid in nature. You may be unable to convert to cash, the portion of the principal component of a loan you agreed to fund. You must take this into consideration when deciding on what loan types will be suitable for you in light of your overall investment portfolio and needs.
We acknowledge the risks of investing to fund loans and have put in place many checks and controls to mitigate your exposure to risk:
- all applicants undergo rigorous screening including a full identity check, credit history check to determine their expected ability to service debt, and risk-assessed by our team of experienced credit professionals
- all loans are secured by a registered mortgage over residential property, commercial property and/or land, in addition to any other security that might be required from a borrower as part of the loan approval terms
- investors' money and borrowers' repayments are held separately from Zagga's own assets, in a bank account in the name of the Zagga Investments Lending Trust. Loan funds are only released to the borrower when the loan is finalised and settled by our solicitors
- we monitor all loans and borrower repayments closely and will take immediate action if a borrower fails to meet their repayment obligations.
Despite these measures, if a loan default occurs, there is a risk that an investor with a beneficial interest in the loan:
- may not receive all of their monthly payments
- could lose a portion or all of the principal amount they have invested to fund that particular loan,
- could potentially be required to contribute towards any shortfall on winding up of the Trust.
Therefore, you need to be comfortable with the level of risk you are exposed to when choosing the risk level of the loans you are willing to fund, the terms of the Trust Deed, and investing in this manner generally.
It is important to note that while you, as an investor, have a beneficial interest in the loans that you have invested in, only the Trustee of the Zagga Investments Lending Trust has the discretion under the Trust Deed to exercise a right in respect of loans that form part of the trust property. The Trustee may, but is not obliged to, consult with investors exposed to a loan about how the Trustee should exercise the rights attached to that loan, including rights to enforce, compromise or waive repayment of the loan.
You should be aware that Zagga accepts no risk whatsoever, nor gives any undertakings regarding the prospects of any loan or that it is a suitable investment for you. Zagga makes every effort to gather all relevant information, applies generally accepted credit principles in assessing the loan, and uses a well-defined matrix to determine a Credit Assessment Score. You must review all available loan and Trust Deed documentation, satisfy yourself as to the risks involved with investing to fund a loan, and understand that you will bear any losses in proportion to your fractional share of each loan in which you are invested.
What are my tax responsibilities?
We will not provide you with tax advice, and you should seek your own independent tax advice relevant to your circumstances. However, we note that as an investor, you must declare your earnings as taxable income and pay your tax accordingly. If you are not an Australian resident for tax purposes, you must let us know as we will be required to deduct non-resident withholding tax.
Are loans covered by insurance?
We do not take out insurance to cover the loans. You must also be aware that there is no government protection to compensate the investor for loss in the event of a borrower default.
Please refer to FAQs – Invest/ What are the risks? for more information on the possible risks associated with investing through marketplace lending.
How are credit scores assessed?
Once a borrower submits a loan application, we will conduct a thorough assessment of their financial position. This includes an examination of:
- their financial situation
- credit history to determine their expected ability to make monthly repayments (serviceability)
- any prior defaults or insolvencies (credit history)
- suitability of credit product (requirements and objectives).
If a borrower's loan application is approved, we will assign a credit score that reflects their credit risk, based on the Zagga Credit Assessment Score, and will assign the applicable interest rate to the loan.
We do not accept applications from borrowers with past insolvencies or bankruptcies and reserve the right to decline any loan application at our discretion.
What is fractionalisation?
A fractionalised loan is divided into multiple, smaller amounts enabling investors to spread their exposure to risk by diversifying across a variety of loan and borrower types.
Zagga fractionalises loans into $100,000 amounts, so for example, if a borrower requires a loan of $1,000,000, this loan is fractionalised i.e. it is broken down into 10 multiples of $100,000.
As an investor, you may lend the full amount, or in multiples of $100,000.
Fractionalisation allows multiple investors to take part in a loan, each with their own fractionalised participation.
How do I transfer money to Zagga?
Once you have opted into funding a loan, you will be required to transfer the money within three business days. You will be emailed instructions regarding the transfer and can also find instructions in your online Zagga account.
Investors may also authorise us to debit their bank account with the agreed investment amount. All loan funds must be available to us not less than 72 hours before the designated loan settlement date.
What happens if a borrower is late or defaults on their repayments?
We have a proactive and rigorous collections process with dedicated specialist staff who actively pursue arrears on behalf of investors.
If a repayment is late, we will contact the borrower immediately to pursue the overdue amount. Default interest will be charged on overdue loan repayments. This, along with any default or legal fees, will be capitalised to the borrower's account and become payable as part of their monthly repayments.
If repayments remain unpaid after 30 days, or if a borrower consistently fails to make repayments on their loan, their account will be referred to our debt recovery team who will take the action necessary to recover the debt, including, if necessary, the sale of the security property.
What happens if I die?
If an investor passes away, the ownership of their account will be transferred to their estate. We will work with the executor of the estate to ensure that ownership of the funds will be transferred as per the terms of the will.
What happens if the borrower dies?
If a borrower passes away, we would work with the executor of the borrower's estate which would assume responsibility for the loan.
Can I withdraw from my loan?
Investments are for the duration of the loan or loans that you have opted into. Therefore, if you agree to fund a two-year loan, your money will be committed to the loan for the full duration, unless the Trustee permits, in its sole discretion, a transfer of your interest to another Zagga investor in accordance with the terms of the Trust Deed.
However, once the loan has been fully repaid, you do not have to reinvest and may withdraw as an investor at any time.
Can I sell my loan?
A transfer to another Zagga investor may be permitted in limited circumstances as set out in the Trust Deed and in the Trustee's sole discretion, although at this point in time, Zagga does not have a secondary market for the sale interests in loans.
Does Zagga pay interest on funds held by the trustee?
There is no interest payable on funds held by the trustee.
How does the trust account work?
Zagga Investments Pty Limited as trustee of the Zagga Investments Lending Trust is the trustee tasked with handling all monies received from investors and borrowers.
When an investor opts into a loan opportunity, the committed funds will be transferred into, and held in the Zagga Investments Lending Trust until our solicitors approve the release of the funds to the borrower. Funds are only released when all loan and settlement conditions have been satisfied and a mortgage has been registered on the security property.
Every month, a borrower's loan repayment will be paid into a bank account held in the name of the Zagga Investments Lending Trust. The Loan Management Fee will be deducted and credited to Zagga, while the balance will be paid to investors as their monthly return.
Do investors earn the default interest charged on overdue loan repayments?
Yes, borrowers will be charged a default interest rate on loan repayments that remain overdue after 14 days. This will be added to the amount payable by the borrower.
How does lending via a trustee work?
To ensure that we maintain an ‘arms-length' relationship amongst borrowers, investors and Zagga, we have set up processes and structures to ensure that investors' funds and borrowers' repayments, are managed by a separate trust structure, the Zagga Investments Lending Trust.
Each loan is separately established within the Zagga Investments Lending Trust. Investors' interests are not pooled. This is to protect investors' funds and to ensure that activity in one loan does not affect another. Zagga Investments Pty Limited enters the loans as trustee of the Zagga Investments Lending Trust, and holds the associated rights and benefits in respect of the loan and the mortgage security, and amounts paid by a borrower as trustee for the investors. Each investor investing in a loan has a beneficial interest in the loan and the security proportionate to the amount that the investor invests.
What happens if Zagga goes into liquidation?
Zagga is required by the Australian Securities and Investments Commission to have a plan in place in the unlikely event of Zagga going into liquidation. In this scenario, a third party would be appointed to oversee the administration of all existing loans. For borrowers, nothing would change. You would still be required to meet your repayments and commitments as per usual.