Peer-to-peer and institution-to-small business loan marketplace Funding Circle launched a new fractional loan marketplace today, the San Francisco company announced.
The marketplace, which allows individual or institutional investors to invest in portions of Funding Circle's small business loans, will feature one- to five-year loans of $25,000-$500,000 with 5.99-20.99% interest rates, depending on the borrower's credit.
According to Funding Circle co-founder and U.S. managing director Sam Hodges, the fractional marketplace has been part of the company's vision from the beginning, but it took some time to work out the technical, legal, and compliance details, "to make sure everything is up to both the letter and spirit of the law," Hodges said in an interview.
Lending Club, which announced a recent partnership with Google after a high-profile initial public offering last month, and Prosper, the second largest marketplace lending platform by originations, both received a fair amount of scrutiny from the Securities and Exchange Commission a few years ago. Not following the strict letter of the law could mean a cease and desist letter from the commission, as happened to both Lending Club and Prosper back then.
Funding Circle recently bought a brokerage dealer and renamed it Funding Circle Securities to facilitate the transactions. Funding Circle underwrites every loan.
Investors will need to commit at least $50,000 to take part in the marketplace, and fraction purchases will be limited to $1,000 minimums. Hodges said investment will be open only to accredited investors, of which the company estimates there are approximately nine million in the U.S.
Hodges added that in addition to the IRA and 401(k) investors, Funding Circle wants to add more institutional partners, and has specifically targeted banks (as have several other platforms). Hodges said he was confident that Funding Circle would have either referral or direct purchasing partnerships with one or two banks by the end of the year.