The team at UK-based peer-to-peer lender Blend Network notes that many investors on their platform will know or are aware that they have a secondary market feature that lets lenders sell their loan parts “prior to the loan maturity.”
The Blend Network team recently answered common questions around this new feature and how to use it properly.
While explaining what a secondary market is, the P2P lender noted that it’s a feature provided by Blend Network that allows investors to “sell all or part of their loan to other investors prior to the loan maturity.”
For instance, if you had invested £5,000 on a loan with 18 months maturity and then needed £3,000 before your loan matures, you would be able to list £3,000 in the secondary market and “someone else might buy than loan part off you,” the company explained while clarifying that Blend Network is not able to guarantee the liquidity in the secondary market. They also mentioned that the feature is specifically designed to provide potential liquidity “to those lenders who want or need to exit their investment ahead of its maturity.”
While commenting on whether anyone can use the secondary market, the Blend Network team noted that anybody who invested on a loan with their platform may use the secondary market as long as the secondary market is available for that particular loan. But you must note that “at times the secondary market may be unavailable for some loans.”
Going on to clarify whether all loans may be traded via their secondary market, the P2P lending platform’s management said:
“No, sometimes the secondary market will not be available for some loans. For example, where an event that has taken place regarding the loan (for example a loan becomes non-performing from a missed payment, close to repayment, partial early repayment, etc…), Blend Network can decide, at its own discretion, not to allow that loan to trade on the secondary market. This is to avoid any asymmetric information between a seller and a prospective buyer. This is also to make sure loans are trading at a fair and appropriate price on the secondary market.”
While commenting on whether there’s a minimum or maximum loan amount that may be traded in the secondary market, Blend Network noted:
“The minimum amount investors can trade on the secondary market is £1,000, the same amount as the minimum investment in the primary market. There is no maximum, lenders can list all of their loan part.”
While discussing how much it may cost to use their secondary market, Blend Network said that sellers can expect to pay 0.6% (£6 for every £1,000) to use the secondary market, however, they will “only charge this upon the successful sale of the loan portion listed in the secondary market. The secondary market is free to use for buyers.”
Addressing a question about what price may a loan be sold at in the secondary market, Blend Network explained that in accordance with P2P regulation set by the Financial Conduct Authority (FCA), sellers are “not allowed to select their own price when they sell a loan part.” Instead, sellers may sell their loan “part at par value which is calculated by Blend Network automatically” and this is “to ensure all secondary market buyers are purchasing loans for a fair and appropriate price.”
Going on to address a question about what information will potential buyers receive when they are reviewing loan parts listed on the secondary market, Blend Network noted that potential buyers on the secondary market will have access to the documents “made available to investors when the loan was initially listed on Blend Network.” If there have been any changes to the loan (for instance, an extended payment plan) then this information “will be included to ensure potential buyers are aware of the position of the loan,” the firm’s management added.
While commenting on whether investors are notified of available loans in the secondary market, Blend Network said:
“No, investors need to keep an eye on their dashboard for available loans in the secondary market but won’t be notified through automatic push emails. This is to avoid jamming investors inboxes when we have a large volume of loans trading in the secondary market.”