This content is about investing in loans by means of assignment agreements. It is not yet updated for investments in Notes and does not reflect some of the changes due to us having received the investment firm licence. We’re working on updating this content.
The phrase “skin in the game” is commonly used in the corporate finance industry and refers to when an owner(s) or principals of an investment vehicle maintain an equity stake in circumstances where outside investors are seeking to invest. This is to ensure the interests of the originator of the asset are aligned with the interests of the investor, as both sides have a stake in the investment.
On Mintos, skin in the game follows this concept. All loan originators that place loans on the marketplace are required to keep a certain percentage of each loan, which is their stake in the loan. For example, if a loan originator with 10% skin in the game issues a EUR 1 000 loan to a borrower and then places this loan on the Mintos marketplace, only EUR 900 of this loan will be available for investors to invest in and the loan originator will keep a stake of EUR 100.
For most situations on Mintos, the investment is done through the direct structure, which is the assignment of the loan to investors. Skin in the game of 10% would imply that up to 90% of the particular loan's principal can be assigned to investors.
In some cases, due to legal requirements, the indirect structure is used. The same amount of exposure of the underlying loan to the ultimate borrower will become available for investment as with the direct structure and the loan originator will still keep 10% risk associated with the loan.
Therefore regardless of the structure, the loan originator will maintain the skin in the game. On Mintos, when we use the term “skin in the game” it is in reference to both the direct and indirect structures on Mintos.