Prosper Shuts Down the Secondary Market for Its Loans

Prosper Marketplace is closing the secondary market for its loans, citing a lack of demand among investors.

San Francisco-based Prosper connects consumers who want a personal loan with investors who are attracted to the yields those loans offer. Investors in the loans include both everyday savers and large financial institutions.

Prosper’s secondary market will be shut down as of Oct. 27, the privately held marketplace lender said in a recent email to investors. Unless another option emerges, retail investors who had hoped to sell the company’s three-year and five-year loans will now need to hold them until they mature.

“As we have rebuilt and enhanced our retail investor experience, we have found that we must focus on those areas that will provide the broadest set of users with maximum value,” the company said in a statement. “Over time we’ve found that very few investors are using the secondary market. While we’ve decided to wind down this service, the decision in no way changes our commitment to the retail investor.”

Prosper’s secondary market was operated through Foliofn. That firm continues to run a secondary trading platform for Lending Club, which is one of Prosper’s top competitors. Prosper’s decision to shut down its secondary market comes three months after the company rolled out a revamped website that was designed to appeal to retail investors. Last month, the firm reported a $35 million quarterly loss as loan originations fell sharply.

Investors’ inability to sell their loans easily is one key reason why relatively few retail investors have put money into the marketplace lending sector. However, the problem figures to be eased by the recent launch of three funds that allow investors to invest in a swath of the sector’s loans, rather than purchasing individual credits.

Orchard Platform, a data and analytics provider for the marketplace lending industry, is making plans to launch its own secondary market. But that market will only be open to institutional investors, according to Matt Burton, Orchard’s chief executive officer.