Peer-to-peer lending platform Funding Circle will no longer allow investors to choose which businesses to lend to and will instead spread their cash across a portfolio of companies.
Funding Circle, which has loaned £2.5 billion to small businesses since launch in 2010, says it will no longer allow ‘manual investing’ where investors choose which companies they wanted to back.
The platform said there were ‘some drawbacks’ to investing in this way, with investors finding the options confusing and the process unfair as some investors struggled to access the businesses they wanted to lend to.
‘Many investors do not currently benefit from lending to all types of businesses,’ the lender said in an update. ‘Currently some investors find it difficult to access [the most popular loans]. We want to ensure investors lending through Funding Circle have an equal chance of accessing all loans, and earn the best possible return.’
Manual investing also means that investors are not spreading their money across a range of business and are ‘not fully diversified and are at risk of having a negative lending experience’, the company said.
The new investment strategy will see investors’ money pooled and invested across a variety of loans, following in the business models of rival P2P platforms RateSetter and Zopa.
Investors will be able to choose one of two new lending options based on their risk preference.
A ‘balanced’ portfolio will lend to a range of businesses with credit ratings between A+ and E. Funding Circle estimates its projected return will be 7.5% a year after fees and bad debt.
The second option is a ‘conservative’ portfolio that will invest in businessed with higher credit ratings of A+ and A. Its projected annual return is said to be 4.8% after fees and bad debt.
The changes will affect new lending from 18 September and after this date investors will only be able to select one of the two options.
Currently investors who loan money regularly through the platform’s ‘Autobid’ facility will be automatically transitioned into one of the portfolios based on their current risk settings.
‘We will email you separately by 25 August to let you know which option we plan to transfer you to. If you don’t want to be transferred over to a lending option, you can pause lending by logging into your Funding Circle account and turning Autobid off,’ said the lender.
Those who do not use Autobid will be forced to choose a portfolio option before being allowed to continue investing, Funding Circle said.