Opinion: Funding Circle’s Controversial Minimum Investment Move

Nick Moules
27th June 2013

There’s one topic dominating the peer-to-peer discussion boards at the moment – the decision for Funding Circle to implement a minimum investment restriction on its auctions.

Some of the criticism aimed at Funding Circle is that it has restricted the market and made it almost impossible for the crowd’s due diligence process to take place, such is the speed at which auctions are filling.

It is easy to sympathise with Funding Circle in the sense that it is dealing with quirks of a market that it created and every step is a step into the unknown. The minimum bid gives borrowers a clear view of the rate it will pay and will make marketing to borrowers and brokers much easier – it is now a fixed rate auction.

It is a sign of the popularity of the sector that too many people want to lend to UK businesses through Funding Circle for the existing auction process to support them. You could realistically assume that the typical Funding Circle lender profile has shifted from an investor to a saver and will shift again post-regulation.

All this means that the Funding Circle minimum investment rule is good news for the competition.

It will push early adopters onto the next level of platform, like rebuildingsociety.com, giving lenders greater choice in the market and allowing them to more evenly align the risk they see in the borrower to the rate they’re comfortable with. It is naïve in the extreme to believe that every C-rated business on Funding Circle carries the same risk.

That is an institutional approach and this market grew on the individuality of the lender market and the ‘fun’ aspect of evaluating and interacting with business owners, which rebuildingsociety.com wants to retain and nourish.

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