Following news that a peer-to-peer (P2P) lending platform recently filed for bankruptcy, specialist lenders have discussed issues concerning the industry.

The announcement from Stockholm-based TrustBuddy, combined with a report that 30 applications from P2P seeking lenders seeking FCA authorisation have been withdrawn, could create doubts about the ability of P2P firms to meet regulatory requirements.

At last week’s LendIt conference, a panel discussion addressed the issue of bad loans in the P2P industry.

“Our reputation is everything, and if we do bad lending then the press will catch on as they are looking for a story like that,” said Christian Faes of LendInvest.

“Different platforms have different fund levels, so we fund all of our transactions upfront.”

Luke Joost of Funding Circle added: “From our point of view, our loan is our brand, our reputation. It’s our whole business model - so if we get it wrong – [well,] we can’t afford to do that.”

The panel was asked about practices they had in place if a client defaulted on a P2P loan.

Christian said LendInvest had seen plenty of defaults, adding: “We haven’t lost any money or any capital, but it is something which often takes time getting comfortable and talking to investors about the fact you have had defaults. But working a loan out is actually a skill.”

“It’s something we learnt probably the hard way in some respects, but we’ve had defaults. But when we do, we work it out for the investors and we have the appropriate skills.”

Brian Bartaby of Proplend, added: “We retain six months’ worth of interest upfront to give us more leeway, but today we haven’t had any, but there are going to be defaults.

“We split our fees - so we take half from borrowers half from lenders - to make sure we are honest and keep up the goodwill of the platform.”

More recently, Ashley Ilsen of specialist lender Regentsmead commented that it is important not to forget that the P2P market has yet to experience the strain of a credit crunch or serious crash.

“Time will tell how this affects the market, but there are a lot of P2P lenders currently out there all trying different variations of a similar model. I imagine there will be a serious shake up once the flaws in the model become more apparent,” said Ashley.

“Further collapses may begin to attract the attention of the regulator.”

Ashley said P2P lending could be a great tool to raise funds but pointed out that it may not be suitable for all investors.

He said it would only be effective if investors are made aware of all the risks involved, especially if the loan is property related.

“Whilst all is going well this isn’t an issue. But once publicity starts growing on John Q Investor losing their savings this could all change, and it will be interesting to see how quickly further regulation is bought in on this,” concluded Ashley.