Funding Circle

Lokolo

How does the risk rating work? I couldn't find how they rate the companies risk, based on what.

And fee's next year

1% annual servicing fee This is based on the amount outstanding on each loan part, and is collected for each loan part if, and only if, a borrower makes a payment to you each month.
1% sale fee If you sell a loan part there is a sale fee based on the amount outstanding on each loan part you sell, and is collected if, and only if, your loan part is sold.

Quite high charges.

samizdat

I have invested quite heavily from the beginning, hoping to take advantage of early pricing anomalies, but have now pulled back, because I agree with Gorgeous George that there is very aggressive lending from those hoping to take the cashback and churn their loans in the secondary market.

The secondary market is a very attractive feature in principle, but its current implementation is deeply flawed. If you can't trade an asset other than at its par value (which you can't), then you are forced really into either selling too cheaply, or not being able to sell at all. What I mean is that there is no mechanism for achieving a market clearing price. This makes this feature of very limited value.

Another thing to watch out for is that so-called "loan parts" are not capable of being subdivided. So, if you bid £1,000 in one big dollop, you can only sell the whole £1,000, not ten lots of £100. This would tend to reduce the liquidity of large pieces of loans. The solution is to carve up your desired exposure into smaller bids.

Finally, the amount of information available from borrowers is very limited, so it is not really possible to take a firm view on credit risk. There is an underwriting process carried out by Funding Circle, but it is hard to say how reliable this might be.

Overall, I think this is a promising idea, but it is definitely risky from a lender's perspective. Savers have huge wads of cash lying around and are desperate for a bit of yield, so I'm not sure all the risks are being priced in.