Funding Circle investors are having to wait more than 16 weeks to get their cash out, prompting an internal review at the peer-to-peer platform.
The embattled lending service said that it was “exploring a range of options” to tackle a logjam in its secondary market, which allows investors to sell their loans.
It has arranged loans worth £7.5 billion to about 72,000 companies since 2010, during which time investors have earned £290 million in interest. Investors lend to a portfolio of businesses, which pay back part of their loans, plus interest, each month.
Those wishing to sell out of their lending positions early have experienced increasingly long queues since the end of last year, with the waiting period having grown from less than a week in December 2018 to an average of 114 days.
Funding Circle’s value has fallen by almost 80 per cent since it was floated a year ago at £1.5 billion. It is now worth about £330 million, only £60 million more than it held in cash on June 30. It was ejected from the FTSE 250 this month.
The issues in its secondary market have been driven by supply and demand issues, as well as by a move made to protect investor returns.
Funding Circle has restricted the proportion of old loans that new investors can be allocated to ensure that their portfolios are not overburdened by debt that established investors may be looking to sell.
It has told investors that it is “reviewing the functionality of our secondary market to try to ensure the best possible outcomes for customers”. It noted that its terms and conditions “state that loan parts put up for sale will be removed from the queue if they don’t sell within 120 days”.
With withdrawals taking longer to process, it said that it had “temporarily paused” the 120-day condition, but was considering enforcing it. Doing so would risk alarming investors. The secondary market is not a guaranteed feature of the service and how long it takes to sell out is dependent on levels of demand from other investors.
Other than the secondary market, investors can access their funds by stopping their investment through the platform and opting to receive monthly repayments of principal and interest as loans are paid back.
The Times revealed yesterday that the Financial Conduct Authority had warned that it was planning a tougher approach towards the peer-to-peer lending industry amid concerns that investors do not understand the risks.
Nick Levine, an accountant who invests via Funding Circle, expressed frustration that it had become “increasingly difficult for investors to know what they can sell within their portfolios and how long it will take.
“It will be interesting to see how the platform performs as we near the end of the credit cycle and whether default and recovery rates deteriorate.”