Funding Circle (LSE:FCH), an SME lender that facilitates loans in both the US and parts of Europe, has decided to pause its secondary market due to the COVID-19 pandemic, according to a blog post.
Funding Circle has recently taken multiple actions to buttress the platform as the crisis challenges the Fintech. Not too long ago, Funding Circle tightened its credit risk parameters for new loans while strengthening collections and recovery capabilities.
To quote the online lender:
“In light of the current situation, we have decided to initially take a prudent approach and extend this tightening, strengthening our criteria for businesses from vulnerable areas of the economy. We have also adjusted our pricing—taking into account how the economy may perform—to maintain projected returns for new loans at current levels. We are focused on originating loans that we expect to be resilient during this period.”
Funding Circle said that as a regulated entity, it wanted to ensure that loans that are bought and sold on the secondary market are priced fairly. As the Coronavirus has inflicted heightened volatility across all markets, pricing for SME loans are challenge:
“The businesses you have lent to are good, creditworthy businesses and we expect returns to remain resilient over the coming period. However, given the current environment, we have decided to be prudent and pause all loan part sales on the secondary market. This does not affect your ability to access funds from the monthly repayments you receive from borrowers. If your lending is turned off you will typically receive 3-5% back of your outstanding portfolio every month,” stated Funding Circle.
For the time being, investors may not sell loan parts nor purchase existing loans. Active listings will be delisted.
Over the last ten years, 57,000 UK businesses have accessed more than £6.2 billion in lending. Funding Circle originated a record £1.6 billion in loans to small businesses in 2019. The loans originated in 2019 were expected to deliver annualised returns of 5–7%. Of course, the Coronavirus is a variable that is hard to anticipate.