The Marketplace is a trading platform where you can sell part or all of your loan parts to other registered FundingKnight investors. This is the quickest and most effective way to expand and diversify your portfolio.
How to buy loan parts
To purchase loan parts that other investors have for sale, visit the Marketplace via the links on your investor Dashboard. Here, you can view all the loan parts for sale, filter them by company, investment value, term remaining, risk rating and minimum interest rate.
Whenever you buy (or sell) a loan part, this will be shown on your statement as a ‘loan novation’ – this is simply the mechanism that enables the buyer to take over the seller’s legal relationship with the borrower.
There are several ways to buy loan parts:
- QuickBuy allows you to search for loan parts for sale by size of investment, term of loan remaining, risk rating and interest. Please note: the actual loan parts offered will reflect the amount of cash you have available to invest; there may be other loan parts available in the Marketplace.
- Advanced allows you to purchase loan parts on offer through the Marketplace. If you wish to make multiple purchases it may be preferable to use the Quick Buy option.
- Autobuy allows investors wishing to own loan parts to submit offers to buy. The investor making the offer sets the interest rate they wish to achieve. Depending upon the underlying interest rate on the loan parts on offer, the price paid by the investor may include a premium, see premium vs discount below.
How to sell loan parts
From your investor Dashboard, you can see all the loan parts that you have in your portfolio and can offer for sale. Any loan parts for sale will appear in the Marketplace – showing details of the loan and the price you’re looking for.
Please note that you do not have to sell the whole of your loan holding; you can choose how much of it you wish to sell. We charge a 0.25% fee to investors selling all or part of their investment in the Marketplace. The 0.25% fee only applies to the amount actually sold.
Please also be aware that all loan parts offered for sale require another investor to purchase them. This means there is no guaranteed access to cash.
Should we become aware of software or other technical problems, FundingKnight reserves the right to restrict trading on one or more loans or to suspend all trading on the Marketplace. This action will only be taken where we consider it necessary to protect the interests of our users, to ensure that payments collected from borrowers are correctly allocated to investors or where we believe that allowing sale transactions would result in the incorrect results, benefiting one group of investors at the expense of another. In such instances all affected investors will be notified immediately.
Premium vs discount
When you sell (or buy) any loan on the Marketplace, the price is made up of the following elements:
1. Capital: The capital balance outstanding on the loan
2. Interest: Any interest that has accrued on the loan and has not yet been paid
3. The difference between the selling price and the total of the capital and the Interest due on the loan. If the sale price is greater than the capital and Interest, then the loan is being sold at a premium, if less at a discount
You are able to offer loans parts at a premium where the interest rates now available are less than the rate you were achieving on your loan part. As a buyer, your expected rate of return is lower than on the original loan. This is because as the loan is repaid, you will receive back the capital you bought and the interest due on that, but not the premium you paid..
You are also able to offer loan parts at a discount. Here, you sell the right to receive income from a business to a new investor, and you receive less money than the amount left to be repaid on the loan. As a buyer, your expected rate of return is higher than on the original loan. This is because as the loan is repaid, you will receive back the capital you bought and the interest due on that, even though you bought the capital at a discount.
Important: Not only we do we offer investors the opportunity to trade their loan parts in the marketplace, but we also allow borrowers to repay their loans early. When an investor has bought a loan part at a discount or a premium, early repayment will change the effective rate of return on their holding – for investors who bought at a discount, the rate will improve, but for investors who have paid a premium the rate will be reduced and in some cases, if the loan is repaid very shortly after purchase, it is possible to make an overall loss.
When offering a loan part for sale you simply set the amount of capital that you are looking to list on the marketplace and a selling price (either at a premium, discount or par) you are willing to exchange at. The tools will highlight the effective annual rate for the buyer based on this selling price, and the amount you will receive net of our 0.25% novation fee.
If a payment is due from a borrower – but has not yet been received or processed by FundingKnight – this will automatically suspend any sale of that borrower’s loan parts in the Marketplace for up to 5 days. Offers will resume automatically after that point, but potential purchasers will be alerted if the payment has still not been received.
We have actively decided to allow the trading of loan parts with an impaired payment record, or classified as non-performing. This is because we believe that some investors may always wish to realise loans, and others may be prepared to take additional risk to buy these loan parts, though typically at a higher interest and a lower price.
The important thing here is that such loan parts offered for sale carry a clear disclosure of the risk and additional risk warnings, prior to purchase.
Where the reason for the non-payment is sufficiently serious that we consider the borrower either cannot or will not continue making payments, we move the loan into ‘recovery’ and immediately suspend trading in that loan.