If you were thinking of investing in peer to peer loans and were scared away by the commitments, Lending Club's trading platform has just added some liquidity.
Investors in peer to peer loans like it for several reasons. One is they could be helping someone. The borrower might need funding to start a business or pay for school. Second is the often the nice return investors see on their money, with many loans earning above 10%.
Certain investors liked the idea, but stayed away for a couple different reasons. One major reason is once you entered into a peer to peer loan you were locked in for the duration of the loan. With most loans being three years, peer to peer loans were not considered a liquid asset. If times changed and you needed access to money, your peer to peer loan was not the place to look.
Today, this might be different and has to do with the major changes to the industry in the last year. The SEC has stepped in and stated that issuing peer to peer loans without proper registration is illegal. This effectively shut down the industry and has done so for some time. Banks that want to open back up have to fill out the appropriate paper work with the SEC before issuing any more peer to peer loans. For those banks that do register, their peer to peer loans become securities and are tradable.
Today, Lending Club is one of the first to complete the registration and back open issuing loans. They have also added a trading section to their website. There, visitors will find it is being managed by Folio a member of Financial Industry Regulatory Authority (FINRA). This is a huge securities regulation firm that clients include the NASDAQ and ASE.
This addition has resolved the problem of liquidity. If you want to get out of a loan because you need the money, you can attempt to sell it on Lending Club's trading platform. Furthermore, if you are looking to invest in a peer to peer loan, but only for a year or so, you can buy a loan listed on this exchange. For traders, Lending Club provides the information about the loan as well as the current credit standing of the borrower. This information protects traders, allowing them to judge the overall risk before buying a particular note.
This has also added some validity to the industry. The SEC has got involved and setup proper regulations for peer to peer lending sites. No longer is it seen as unregulated and lax in procedures. Also, this opens the door for a larger exchange of peer to peer loans. The possibility of complete exchange, where investors are able to trade between several different lending sites is now very plausible.