Source: Funding Circle
Funding Circle, the global small business loan marketplace, has become the first and only major peer-to-peer lender in the U.S. to offer individual investors the opportunity to invest in secured small business loans with the launch of its new Fractional Loan Marketplace.
Through its affiliated broker-dealer, Funding Circle Securities, investors can now buy fractional pieces of secured small business loans ranging in size from $25,000 to $500,000 and in term from one to five years, with coupon rates of 5.99-20.99%.
Funding Circle co-founder and U.S. managing director Sam Hodges said the new marketplace opens the traditionally hard-to-reach asset class to more individual investors who can now build diversified portfolios with smaller amounts of capital by investing in portions of loans instead of whole loans.
"We're excited to be the first major P2P lender in the U.S. to offer qualified individual investors unique access to a curated selection of true small business term loans underwritten by our seasoned credit professionals using robust data analytics," he said. "Our borrowers are high-quality businesses left behind by banks due to industry inefficiencies, tighter lending regulations and archaic underwriting models. These are established businesses that have assets and cash flow to secure loans, plus a legitimate plan for growth."
Since Funding Circle was founded in 2010, 35,000 investors have lent more than $800 million to 7,000 small businesses globally.
"There is tremendous demand in the market for fast and affordable small business loans; we're about to cross $1 billion in originations globally," said Hodges. "With the launch of our Fractional Loan Marketplace, we expect it will be another good year to tap into investors seeking yield in a low rate environment and bring more capital into this attractive asset class."
Investors can access Funding Circle's Fractional Loan Marketplace with a minimum opening balance of $50,000 and a minimum investment per borrower-payment dependent note (BDN) of $1,000. Investors receive access to data from across the full Funding Circle loan book, and can either browse the marketplace and select individual investments or set criteria and invest automatically through an auto-bid function. Every loan on the marketplace is underwritten by Funding Circle's experienced underwriting team and assigned a risk score ranging from A+ to C. Funding Circle is currently only accepting investment from individuals and entities who meet the SEC's criteria for accredited investors.
For the nine million accredited investors in the U.S., Hodges offered his top tips for individuals considering investing in P2P loans:
Do your research: Given the investor appetite for yield, there are a lot of new entrants into the P2P lending market, so make sure you are partnering with a well-established and respected originator. Look for a platform that is well capitalized with clear and transparent underwriting procedures, experience and proper infrastructure around servicing.
Hold them in your IRA: Along with attractive yields and consistent returns, enjoy the tax benefits of holding P2P loans in an individual retirement account. If your current retirement account cannot accommodate P2P loans, consider opening an IRA through one of the major P2P lending platforms to access tax-free or tax-deferred income.
Automate your investing: Save yourself hours of wading through hundreds of loans each week by working with a platform that offers an auto-bid function. Based on your investment goals and risk tolerance, simply set your investment criteria - such as preferred rate, term, risk level, industry sector or region - and then set it and forget it.
Reinvest your gains: As you receive principle and interest payments, ensure they are automatically lent back out to new borrowers, so you can spread your money across even more loans and further diversify your portfolio. The last thing you want is cash sitting in your account earning no interest and bringing down your overall return.