I have somewhat soured on Lending Loop and am letting my (small trial) portfolio run out rather than adding to it. I think it's great in theory, but at its current scale and economics it's not worth it to me.
Suppose you have a portfolio with an average rating of B. It looks like you should be yielding 12.2%, which looks attractive.
But LL takes the first 1.5%, so you're only looking at 10.7%. Then you need to make allowances for loan losses. It's early and there isn't much data, but LL's own PD (probability of default) estimates in their offering memorandum are a good start. You have to guess average LGD (loss given default), but you rapidly realize expected losses (EL) might account for 1/4 of the nominal return, so you're now down to ~7.5-8.5%.
Then you add the inefficiencies coming from the investing process. Your keep on getting your principal back, which is good for minimizing losses, but means you either accumulate unproductive money in your account, or you need to be frequently be logging in to reinvest. Which would be fine if there were a large selection of loans, but so far the market liquidity, while impressive given they're just starting up, doesn't actually have that many choices. If you put on any restrictions for yourself ("I understand loans in sector X better" or "I want only high-rated (or instead high-yield) loans", "term below (or above) X") it's easy to find none or just 1 or 2 options available. At which point you try doing due diligence, and find yourself saying "do I hold my nose and invest my money and trust diversification, or do I hold back my money at 0% and wait for the next opportunity". Finally, don't forget your money is earning 0% the moment you commit it to a loan, in the period before the loan finalizes.
Add to all of this the tax inefficiency (as @treva84 pointed out) since it's all income rather than dividends and cap gains, and it's easy to find yourself making actual returns like a passive balanced ETF couch potato portfolio, but with a lot more work on your part.
Don't get me wrong; I don't think Lending Loop is hopeless. I wish them the best of luck to get to 3X the loan volume so there's actual meaningful choice and faster turnover. I hope competition will drive down their fees from 1.5% to 1%. Hopefully the best possible current assumptions on expected losses will turn out to be to have been too pessimistic. Allowing RRSP/TFSA accounts would get around the tax inefficiency. And perhaps they'll eventually develop a robo-allocator. Once they achieve 3 or 4 out of those 5 things, I think they'll become a much more attractive value proposition for investors who want to be a bit more active/hands on to get decent return on their money as well as the time they put in.
I'm firmly convinced active investing is much more likely to create (rather than destroy) value in peer-to-peer lending -- and small business lending in general -- than active management (or self-managemend) of publicly traded equities and government bonds! Just LL aren't quite there yet.