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Small Business Exchange performance

Around 400 investors have traded on the Exchange so far

9th February 2023

The Crowd2Fund secondary market re-opened on the 20th of June 2022 and we wanted to share an update with you on its performance over the last five months. It was closed for two years during the pandemic to protect against investor losses and gave us some time to implement some significant improvements.

Changes to the methodology of the secondary market were implemented to align with new FCA rules, protect against investor losses from purchases and improve your investing experience. The marketplace has been active but with limitations in place while we measure and analyse the performance.

During this test phase, we gathered extensive user insights, monitored volumes, and harnessed the additional operational benefits of having the secondary market open for investors. These additional benefits are activities such as ensuring we have the latest information available on businesses being listed and monitoring the repayment history of businesses more closely. 

Summary of performance

Surprisingly, we have seen much greater demand on the buy side than the sell side of the secondary market. No loans purchased on the secondary market have resulted in losses either through defaults or write-offs for investors since reopening.

This is due to the checks and review processes that have been established when investors submit loans to be listed. There have been 451 successfully completed transactions on the secondary market from 1,129 applications, allowing investors access to their capital and these features help investors diversify their portfolios to manage risk.

Incidentally, having the secondary market operational has also allowed us to enhance our loan book monitoring processes. To address the demand and provide more opportunities listed we are going to review the types of loans that we list and potentially broaden these to give investors more opportunities to invest via the Exchange.

Future next steps

The initial peak after reopening has now stabilised and about 418 investors have engaged with the secondary market by completing the specific secondary market appropriateness test. We would like to encourage more investors to use the feature through marketing and extending the types of listings on the marketplace.

The automated checks and measured variables will be extended to allow further automated accuracy of risk assessment and pricing for businesses that may be an Equifax D grade. These automated checks will also be applied to the primary market to optimise the primary market review process.

The user experience will be further enhanced with automated restrictions rather than manual rejections for investors on loans that will be rejected automatically. If losses do occur the re-pricing algorithms will be assessed and adjusted appropriately along with an analysis of why the loan got approved for listing in the first place.

Interestingly the average time to sale is 4 hours 46 min, we will continually aim to improve the time to sell but it should give investors some reassurance that there is liquidity available for investors looking to access their capital before the maturity of the loan.

Finally, we will potentially look to extend our auto-invest feature to include items on the secondary market giving more opportunity to diversify and also creating additional liquidity for investors who are looking to sell.

We hope to continually improve the accuracy of the re-pricing of loans, protect you from potential losses and broaden the types of loans that can be listed. The Small Business Exchange has great potential, and we hope to continue its development during 2023, in a secure and compliant way.

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Risk warning

Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.