Funding Circle

1. What is Funding Circle?

Funding Circle is an online social lending community where people directly lend to small businesses in the UK, supporting the core of the UK economy.

Funding Circle sources the same information on business borrowers that banks use from Experian. Borrowers are identity checked and experienced Funding Circle underwriters review all applications before they are posted onto the platform.

Funding Circle only allows established and creditwrothy businesses with at least two years trading history into the community. Businesses that make it through the assessment process are classified in risk bands from A+ (very low risk) to C (average risk).

Investors then choose which type of businesses to lend to and spread their money across 20 or more businesses to reduce their risk. Investors only fund a small proportion of each loan, called a loan part.

Funding Circle then manages the monthly repayments from the borrowers back to the investor. Funding Circle also provides account management and reporting tools for investors. In the unlikely event that payments are missed Funding Circle will use a debt collection agency to chase borrowers.

Businesses borrow from lots of different investors who bid an interest rate to become part of the loan. The lowest bids are accepted so the borrower gets the best rate possible.

Bank overheads are sidestepped in the process giving investors higher returns and borrowers lower rates.

For more information please see the How investing works or How borrowing works pages.

2. Who is Funding Circle backed by?

Funding Circle is backed by a select group of experienced private investors, including current and former heads of private equity firms, venture capital firms, insurers, banks, IT companies and leading professional services firms. Our Board of Directors consists of a number of individuals with extensive experience in financial services see here .

3. Is Funding Circle regulated?

Funding Circle is registered with the Office of the Information Commissioner (Reg no. Z2133885) for data protection purposes. Funding Circle is a member of CIFAS – the UK’s leading anti-fraud association. Funding Circle is PCI compliant and adheres to the Payment Card Industry Data Security Standard (PCI DSS) for the holding of client debit and credit card data which can be seen here. Funding Circle has a Consumer Credit Licence with the Office of Fair Trading (OFT) (licence no. 0635439). Funding Circle Recoveries Limited a subsidiary of Funding Circle Limited also have a Consumer Credit Licence (licence no. 0640243).

Funding Circle is not currently regulated by the Financial Services Authority (FSA). Funding Circle held extensive correspondence with the FSA over a number of months prior to commencing operations which led to the FSA deeming that Funding Circle’s activities did not require regulation by the FSA. The core back-end money management system of Funding Circle is used by a number of large financial institutions that are authorised and regulated by the FSA.

Funding Circle Limited’s company number is 6968588 and our registered office is 99 Southwark Street, London, SE1 0JF.

4. What happens if Funding Circle goes out of business?

As with investing in corporate bonds and shares, lending via Funding Circle is not covered by the Financial Services Compensation Scheme. If you were to invest in corporate bonds or shares, and the broker that held these investments were to cease to trade, your underlying investments would still remain safe. We have put in place similar comprehensive arrangements at Funding Circle so that even in the unlikely event that Funding Circle goes out of business, the loans you have originated on our platform would be unaffected and you would continue to receive your repayments:

• At Funding Circle, rather than lending to a bank, you are lending to lots of small businesses, and all loan contracts completed are directly between investors and borrowers. These contracts would remain in place and be unaffected in the unlikely event that Funding Circle were to fail or become insolvent, since the existence of those small businesses is not affected by Funding Circle.
• We have also put in place comprehensive arrangements to transfer the servicing role we perform on all outstanding loans to a third party back-up servicer, Link Financial Outsourcing Limited, with whom we have entered into a back-up servicing arrangement. Link Financial Outsourcing Limited is an S&P rated servicer of loans and currently services over €5bn of loans in the UK, and across Europe. Link Financial would step in and continue to collect repayments from borrowers, and distribute these to investors.
• Any funds you have un-lent are also covered - un-lent funds in your Funding Circle investor account are held on trust in a segregated client account at Barclays Bank plc, and are fully covered by the Financial Services Compensation Scheme up to £85,000 if Barclays Bank plc were to cease to trade. In the unlikely event that Funding Circle were to fail or become insolvent, because these funds are held on trust in a segregated account any funds you have un-lent, (even those above £85,000) would not be affected and would be distributed to your external bank account within 14 working days. We use the same money management IT system as major pension funds, spread betting firms and fund managers to ensure the fund movements into and out of your account are recorded accurately.

Please see more details on the Risk, Returns and Fees page of how risk at Funding Circle is controlled.

5. How can I contact Funding Circle?

You can send us a message on our website here. We welcome any thoughts, comments or questions you have and aim to reply within 2 working days. You can also call us on 020 7401 9111, Monday to Friday, 9am – 5pm.

Investing

1. Who can become an investor at Funding Circle?

To be an investor on Funding Circle you must meet the following criteria:

(a) you must be an individual, LLP, limited company or public body;
(b) if you are lending in your capacity as individual you must be over 18 years old;
(c) if you are lending in your capacity as individual you must be a permanent resident of the UK (excluding the Channel Islands and Isle of Man);
(d) if you are a limited company, you must be registered with Companies House;
(e) if you are an LLP, you must have a permanent place of business in the UK (excluding the Channel Islands and Isle of Man);
(f) if you are a public body, you must be registered or formed with the relevant authority in the UK (excluding the Channel Islands and Isle of Man);
(g) you must have a valid UK bank or building society account;
 

2. Can I lend if I have a Consumer Credit Licence?

Yes. At Funding Circle there are no restrictions on how much you can lend to limited businesses or large partnerships. There are no additional procedures to go through, no extra forms to fill in and no different agreements to sign.

Unfortunately, if you hold a CCL you cannot lend to sole traders and small partnerships with 3 or fewer partners. These are the smallest types of businesses, and loans are regulated under the Consumer Credit Act. Funding Circle cannot currently facilitate the additional procedures required by individuals or businesses with a CCL to lend to these types of businesses.

Please note that the majority of lending at Funding Circle is to limited companies and large partnerships, and so we do not expect this restriction to materially affect the ability of investors with a CCL to quickly lend out money at Funding Circle.

3. How much can I lend?

There is no cap on the total amount you can lend to businesses at Funding Circle.

You can make bids from £20 to £2,000 on each loan request. If you want, you can make multiple bids on the same loan request. If you are using Autobid it will never bid on the same loan request.

4. Who can I lend to?

 At Funding Circle you can lend to all types of businesses including limited companies and large partnerships (with 4 or more partners).

By agreeing to the Funding Circle terms and conditions for investors you warrant, for the purposes of lending to sole traders and small partnerships (which make up a small portion of total lending at Funding Circle), that you are not “lending in the course of a business” to individuals i.e. making large amounts of credit available to individuals as a bank or large dedicated finance company would do. If you feel you are “lending in the course of a business” please contact us.

5. How do I lend?

In order to lend at Funding Circle you must register as a Funding Circle investor and transfer funds into your Funding Circle Investor Account.

There are two main ways to lend at Funding Circle:

1. You can lend quickly and easily with minimal effort using Autobid
2. Or alternatively you can choose the businesses you want to lend to by bidding on loan requests or purchasing parts of existing loans from other investors

If a bid is successful, money will be transferred from your Funding Circle investor account to the Funding Circle account of the borrower. You will then hold a loan part, which entitles you to monthly repayments at the rate you have set from the small business borrower.

You can find more information on the How to Lend page.

6. How are the Funding Circle risk bands set?

Funding Circle’s risk bands are set based on data sourced from Experian, a leading credit agency. Experian data is used by a number of major banks and businesses in their decisions on whether to extend credit or trade credit to businesses.

The risk band that Funding Circle allocates to a borrower includes a number of factors:

• Financial data from annual returns filed at Companies House including balance sheet data and financial ratios
• The credit scores and track records of directors of the company
• Information from high courts and county courts including County Court Judgements
• Data on the how quickly a company pays other businesses, from a wide database of companies in the UK – slow payment is a good indicator of financial distress
• Data on the existing outstanding credit of a business with banks and other investors, and the payment performance of these debt obligations
• Data on previous credit searches by other providers on that business

Experienced Funding Circle underwriters review all loan applications before they are allowed to list loan requests on the website. Only creditworthy businesses are allowed to borrow at Funding Circle.

7. What fees does Funding Circle charge to investors?

From 5 January 2011, Funding Circle will charge investors a 1% annual Servicing Fee based on the amount outstanding of each of your loan parts. We will deduct this fee on a proportional basis each time a repayment is received from a borrower. This fully aligns us with investors – we only get paid when you get paid, and if a borrower misses a payment we don’t get paid unless the borrower corrects that missed payment. Please note there are no Servicing Fees due for any loan parts in loans accepted by the borrower or listed in 2010, for the entire term of the loan parts.

From 5 January 2011 onwards, if you wish to sell your loan parts to another investor, Funding Circle will charge you a 0.25% ‘Sale Fee’ based on the principal amount remaining on the loan parts you sell. Again we only get paid a ‘Sale Fee’ if your loan parts are sold, and we deduct these fees from the proceeds of any loan parts that are sold.

8. Can I get access to my money before the end of a loan term?

Any money that is not lent out can immediately be withdrawn from your Funding Circle investor account. For money that is lent out, there are a number of ways to get access to your money.

If you want quick access to your money you can sell some or all of your loan parts on to other investors. You can sell your loan parts quickly and easily using our Autosale tool, which will automatically list for sale a certain number of loan parts, or individually pick the loan parts you would like to list for sale. As parts of existing loans offer immediate interest, without any need to wait for the loan arrangement to be completed, they are likely to be popular with investors, resulting in an active marketplace.

Alternatively, you can stop re-lending out your money and withdraw money as your monthly repayments accumulate. If you are using Autobid you will need to remember to switch this off.

9. Where is my money held?

Any un-lent funds in your Funding Circle investor account are held on trust in a segregated client account at Barclays Bank plc. This means your funds are treated as separate from Funding Circle’s own accounts, and from the Funding Circle accounts of other investors and borrowers.

We use the same money management IT system as major pension funds, spread betting firms and fund managers to ensure the fund movements into and out of your account are recorded accurately.

10. What does Funding Circle do to prevent borrower fraud?

Directors or partners in businesses borrowing through Funding Circle are comprehensively identity checked. In addition, businesses must have been trading for at least 2 years to borrow at Funding Circle, which significantly reduces the likelihood of fraud.

We validate the identity of directors using Experian’s advanced identity validation software – Authenticate.

Funding Circle is a member of CIFAS - the UK's leading anti-fraud association. If a borrower is discovered to have committed fraud in borrowing through Funding Circle, Funding Circle will fully refund investors for amount lent to that borrower.

11. What does it mean if a loan has a personal guarantee or security attached to it?

At Funding Circle investors lend money directly to small and medium sized businesses. The business must make repayments each month to repay investors. 

Funding Circle typically takes asset security or personal guarantees from directors on loans to provide further comfort to investors that in the event that the borrower is unable to make repayments on the loan, there is additional security available.

At Funding Circle, we can take three forms of security: a director’s personal guarantee,  a charge across all a company’s assets (an all asset security agreement/a debenture), or a security on a specific asset (asset backed security). The security taken is dependent on the size of the loan and purpose of the loan.

Personal guarantees

This form of security is a guarantee from the Director/s of the business taking the loan out. In this agreement, the Directors personally guarantee that if their business can’t repay the loan, they will personally repay it. Funding Circle Recoveries, a wholly owned subsidiary of Funding Circle Limited, will pursue the guarantors if the business cannot repay the loan for whatever reason.

There are a variety of circumstances where personal guarantees may be required; Funding Circle underwriters have discretion beyond these criteria to ask for personal guarantees from businesses if they think it’s appropriate.

• If the company is a subsidiary of another company, guarantees are sought from the beneficial owners of that company i.e. the shareholders and owners of the parent company and ultimate owners of the business.
• Where the affordability of a loan is below certain thresholds based on monthly debt repayments (including other debt), credit limits and profitability but is still above the minimum thresholds required at Funding Circle based on our proprietary credit models.
• Where the business is small; judged by measures such as levels of turnover, profit, assets and number of employees.
• When the shareholders funds of a company are low or negative (it is not uncommon for profitable, healthy small businesses to have negative shareholders funds).
• Where filed financial information on a company is not recent, and/or up to date management accounts are not available.

Businesses that require personal guarantees, but refuse to give them, cannot borrow through Funding Circle.

Whether a loan has a personal guarantee (or another form of security) or not does not affect the risk band of a business. A personal guarantee may give additional comfort to investors, however, no loans should be considered zero risk. If a loan goes into default, Funding Circle Recoveries will act immediately to recover the maximum proceeds possible through the Courts. The timeframes for recoveries will vary on a case by case basis for loans with or without personal guarantees.

All asset security agreement

For larger loans greater than £100,000, Funding Circle will typically put in place an all asset security agreement. This is an agreement with the borrower that if the borrower defaults, some or all of these assets in the business can be sold or liquidated in order to repay the loan. This security is sometimes called a ‘fixed and floating charge’ because it is a general hold over all the business’s assets, rather than one in particular. Funding Circle Recoveries, a wholly owned subsidiary of Funding Circle Limited, holds the security on trust on behalf of investor and registers charges at Companies House. This prevents other funders gaining priority security over the assets in question if they register security at a later date. Please note in certain circumstances other investors that are already lending to the business may have priority security to Funding Circle investors, if this is the case it is noted in the "Asset Security" section on the Financial Summary tab on a loan request page. 

Specific asset security

Asset backed security is control of a specific asset that the loan is being used to buy e.g. a coach, machinery, agircultural equipment etc. When a business is borrowing to purchase a large asset, Funding Circle Asset Finance, a wholly owned subsidiary of Funding Circle Limited, will own and hold title to the assets and lease these to the borrower through a hire purchase agreement at a total cost of £1 per quarter. If the borrower cannot repay the loan for whatever reason, Funding Circle Asset Finance will take control of the asset it owns and sell this to try to repay investors. Funding Circle Asset Finance takes ownership of assets, rather than registering a charge at Companies House, to protect Funding Circle investors from losing a priority hold over the assets to banks or other registered charge holders as soon as the asset enters the businesses use.This type of security is required when a business is purchasing a specific asset with a value over £75,000. Once the business has fully repaid the loan they can purchase the asset for a nominal sum of £10, referred to as a "conditional sale."

12. How do multiple loans work from an investor perspective?

Businesses typically have multiple finance needs throughout the year, for example they may need finance to purchase new assets or to fund new projects. Previously at Funding Circle, businesses were restricted to one outstanding loan. From 19th September 2011 existing borrowers are able to fund their new requirements through Funding Circle, subject to meeting the following criteria:

• Existing borrowers will only be able to apply for another loan after successfully making a minimum of 6 repayments on their previous loans
• The total amount a business can borrow across all their loans cannot exceed £250,000 (the current maximum loan amount).
• All businesses will have to fully submit a new loan application and provide up-to-date financials since their last application.
• Only businesses that pass the credit assessment process, based on the enlarged amount of their loans will be listed for another loan.

Autobid will continue to only bid once per business. If a business that you are already lending to is listed for a second loan, Autobid will not bid on that second loan.

If you choose individual businesses to lend to, any loan requests where you are already lending to a business will have the following symbol    next to the loan request title on the loan requests or loan parts page. 

You can see if a business already has another loan outstanding at Funding Circle on the "Financial Summary" tab on the loan request page (in the "Existing Outstanding Loans" section). Existing loan request pages will also show details of new loans if these are accepted.

In addition, in the download spreadsheet on the statistics page you can see details of any related loans for each individual loan.

Please contact us here if there is additional areas you would like to see multiple loan information displayed.

1. Who can apply for a loan?

Any established and creditworthy business currently operating in the UK can apply for a loan at Funding Circle, including partnerships or limited businesses, (unfortunately this excludes sole traders). Businesses must have at least 2 years of filed accounts or, in the case of companies that do not file accounts, been trading for at least 2 years, and have no outstanding County Court Judgements over £250.

2. What types of loans can a business get at Funding Circle?

Funding Circle loans are:

• £5,000 to £250,000
• 1, 3, or 5 years
• Fixed rate
• Monthly repayment
• Unsecured (some loans may require director guarantees)

3. What interest rate will my business pay?

The total cost of your loan includes the interest you pay to investors, and Funding Circle fees.

The interest rate you will pay on a loan at Funding Circle is always determined by an online auction to ensure you get the lowest rate possible.

Funding Circle can provide indications of the rates that businesses in different risk bands are currently borrowing at, however, the exact rate you pay will be determined by a number of factors including the target rate you ask investors for, the risk band you are in, how fully you fill in your loan request page, and how promptly you answer investor questions.

You will be allocated a risk band once you have submitted your application to borrow on Funding Circle. Indicative interest rates, Funding Circle fees and the APR you will pay can be seen here .

4. How quickly can my business get a loan?

Your application to borrow at Funding Circle will take 20-30 minutes to complete. Once this is done, Funding Circle underwriters will review the application and let you know within 2 working days whether you can borrow at Funding Circle.

If your application is approved, a loan request page will automatically be posted and registered Funding Circle investors will review this and bid. Auctions typically last 7-14 days, however, as soon as your loan request is fully funded with bids you will have the option to accept the loan which may be substantially quicker than the auction period.

Once you have accepted your loan, funds will take 3 working days to reach your business bank account.

5. Can my business pay back a loan early?

Yes, unlike many other finance providers you can pay back your loan early at any time AT NO EXTRA COST. You will just need to pay us the interest due until the end of the month, and the principal amount outstanding.

For example if you took out a £25,000 loan for 36 months with an interest rate of 6% the total you would have to repay over that 36 month period would be £27,380. If after twelve months you wanted to repay the loan you would only pay back £26,373 saving you £1,007. If after twenty four months you wanted to repay the loan you would pay back only £27,134 saving you £246.

6. Can my business remain anonymous when borrowing?

Yes. At Funding Circle all business borrowers can choose to remain anonymous when making a loan application. However, businesses that reveal their identity to investors especially in the case of larger loans tend to get offered lower interest rates by investors. If you choose to reveal the identity of your business it will only be available to registered Funding Circle investors.

If you accept a loan, the full name of your business will be included in the key contract terms. This is required for legal purposes. No investors will be able to see your real name or details, and loan contracts are not disclosed other than to a borrower unless required by law or regulation.

7. Can my business have more than one Funding Circle loan?

From 19th September as an existing borrower you will be able to apply for another loan. This is good news for existing borrowers who have additional finance needs.

The following conditions apply to multiple loans:

• Your business must have completed 6 months of repayments from your previous loan.
• The maximum amount of debt your business  has outstanding on Funding Circle loans cannot exceed £250,000.
• You must fully submit a new loan application to be assessed by our credit assessment team with a new email address - please contact us for further details 
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8. What fees does Funding Circle charge?

Our fee structure is extremely simple and transparent. There are  none of the hidden charges and extras like monitoring fees, review fees, security fees, or early repayment fees that you will find at other providers. If, and only if, you accept a loan offer the following one-off charge will apply*: 

	1 year	3 years
Loans (£5k - £250k)	2%	3%
Large asset finance loans (£100k - £250k)	N/A	5%**

There is no obligation to accept a loan offer from investors. Fees are deducted from the loan proceeds before being paid to you.

Plus you can repay early at any time at no extra cost. 

* A higher completion fee may be charged for applications managed by intermediaries.

** Includes £100 finance arrangement charge from Funding Circle Asset Finance. Excludesquarterly instalments of £1 per quarter and Final Payment charge of £10 payable to Funding Circle Asset Finance on the Purchase Completion date once the loan to Funding Circle investors has been fully repaid.