Tax

1. What are the tax consequences of lending as an individual?

Returns from lending at Funding Circle are currently paid without any tax being deducted. If you are lending as an individual you should declare any interest and gains to the HM Revenue & Customs on a self-assessment tax return or inform your local tax office.

At the end of the tax year Funding Circle will make available to all investors an Annual Income Statement and Annual Tax Statement, splitting out the relevant amounts for your tax return, to download in the My Statements section of My Account.

The wording below is for indicative purposes only, and does not constitute tax advice. If you are in any doubt about your tax position you should speak to your accountant or make an appointment to speak to an adviser at an HMRC enquiry centre.

Taxation of interest earnings

• Funding Circle does not currently deduct income tax from interest earnings and you will need to declare these to HMRC.
• Interest payable to investors on money loaned is charged to income tax in the tax year of receipt. For example, interest received on 31 December 2010 is received in and taxable for the tax year 2010/11.
• If you already complete a tax return you will need to ensure the appropriate interest is shown on the return.
• If you have not previously completed tax returns you will be required to do so if you have a tax liability and should contact your local Tax Office, who will issue the appropriate Tax Return for your completion or adjust your Pay As You Earn (PAYE) tax code accordingly.
• For further details see HMRC guidance here .
• In a small number of cases, where investors are lending to a large number of borrowers they could be deemed to be carrying on a trade of money lending. See HMRC guidance by clicking here . If you are in any doubt about whether you are carrying on a trade of money lending, you should contact your accountant or HMRC directly.
• The tax statement shows gross and net payments made to you (after the deduction of the servicing fee).  

Taxation of cashback

• In certain circumstances Funding Circle offers cashback to investors. The cashback is considered an inducement to enter into a transaction and is received as a direct consequence of having made the loan.
• Cashback promotions are not normally treated as income and are not subject to income tax or deductions. 

Taxation on sales of loan parts for a premium or discount

• Some investors may choose to redeem their loan parts before the maturity date by transferring their loan parts to other investors. At Funding Circle, the way we do this is to effectively replace the original investor by a new investor on terms that remain consistent for the borrower. However, between the original and the new investor, profits and losses can arise.
• Our understanding is that no Funding Circle loan is structured as a “security” and nor is it a “debt on security”. Accordingly, any profits arising on the maturity or disposal of a loan should not be liable to income tax.
• Profits and losses arising on the disposal of loans where you are not the original investor would normally be taxable under the capital gains tax regime. However, due to the way that that “sales” are structured at Funding Circle, all loans, including replacement loans, are effectively treated as original loans for capital gains tax purposes. This means capital gains tax should not be payable on loan parts sold at a premium, and loss relief should not be available for loan parts sold at a discount.
• For further details from HMRC please click here and see the section on “Simple debts".

Taxation relief for irrecoverable loans

• Unlike peer to peer lending where individuals lend to other individuals, relief from Capital Gains Tax may be available on loans which become irrecoverable at Funding Circle.
• In broad terms, in order to qualify for relief the loan must be made to a borrower who:
•    Is resident in the UK, and
•    Uses the money wholly for the purposes of a trade.
• Funding Circle aims to ensure that loans to businesses made satisfy these criteria but you are responsible for checking that any claims made for tax relief purposes are valid.
• Relief is only available when the loan has become irrecoverable. This means that it will be necessary to demonstrate that there is no reasonable prospect of the loan ever being repaid and that reasonable steps have been taken to recover the loan. If the borrower continues to trade it is unlikely that this test will be satisfied.
• The relief allows the amount of the outstanding loan principal to be treated as an allowable Capital Loss.
• There is no specific time limit for claiming the loss on the loan, provided the loan has not been waived or written off at the time of claim. The loss is deemed to arise at the time a claim is made. In some circumstances it may be possible to claim the loss in either of the previous two tax years provided that all necessary conditions as to the loan being deemed irrecoverable were met at this earlier date.
• If after a loss claim has been made, a portion the loan is repaid this amount will be treated as a Capital Gain in the year it is repaid.
• Losses will be automatically offset against chargeable gains arising in the year. If no chargeable gains are made then the Capital Losses will carry forward indefinitely to use against the first available Capital Gains, whether on realisation of loan parts or on sale of other assets.
• For further details from HMRC please click here and see the section on “Losses on loans to traders".
  

2. What are the tax consequences of lending as a business?

• Business investors can select the appropriate dates to coincide with their year end and accounting period in the My Statements section of My Account.
• You should provide the Annual Income Statement to your accountant to include in your accounts.
• Business are required to account for interest receipts on a receivable basis. Accordingly, apportionments of the amounts actually received may be required for accounting purposes.
• Transfers of loans may give rise to profits or losses under the Loan Relationship rules. This is an area which may require specialist tax advice.

3. Can I lend via a Self Invested Personal Pension (SIPP)?

 At present you cannot lend via a SIPP on Funding Circle. We are working hard to allow you to do this in the near future.

4. Can I include Funding Circle loan parts in an ISA?

At present you cannot place your loan parts in an ISA. We are working hard to allow you to do this in the near future.

5. Can I lend if I am a resident in the Channel Islands or the Isle of Man?

Unfortunately not. HMRC considers the Channel Islands and the Isle of Man as a non-UK residency, and in these circumstances Funding Circle would be required to withhold tax on behalf of investors. Funding Circle does not currently have systems in place for the withholding of tax and therefore cannot allow non-resident investors to participate at this time.

My account

1. Are there any tips for logging in if I forget my password?

 Passwords will contain at least one capital letter and one number. Answers to security questions are also case sensitive. If you are still having trouble please do not hesitate to call us on 0207 401 9111 and we will help you log in.

2. Where can I see information on my bids and existing loan parts?

 You can see information on any bids you have made and your existing loan parts in My Account .

3. How do I edit my investor profile?

Your investor profile page will display certain information about you and you’re lending which can be seen whenever a Funding Circle member clicks on your username in an auction or Circle.

You can choose to hide all the information by changing your privacy settings in My Profile in the My Account section of the website.

• The region in the UK you are based in
• Circles you are a member of
• When you became a Funding Circle member
• The number of loan parts you currently hold
• Your average lending rate at Funding Circle
• Businesses you have lent to at Funding Circle

4. Do investors remain anonymous?

You can remain anonymous to other investors on your profile page and in bidding on loan request pages by changing your privacy settings (see above). Unless you share this information yourself, your username is the only name that will be shared with other investors.

When you successfully lend money to a borrower, your real name will be included in the key contract terms which a borrower can see. This is required for legal purposes. No other 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.

5. Can I change my username?

 Unfortunately not. Once you have chosen a username you cannot change it.

6. How do I change my contact details?

You can change your contact details in the My Account section of the website.

7. How can I transfer money into my Funding Circle Investor Account?

You can transfer money into your Funding Circle in two ways:

1. Debit card – If you are transferring in money for the first time, follow the onscreen instructions to type in your card details and the amount you want to credit your account with. Funds will be available immediately for lending. Unfortunately credit cards cannot be used to credit your Funding Circle account.
2. Bank Transfer – You can transfer money directly from your own bank either by internet or telephone banking, or in a bank branch into your Funding Circle investor account. Details of how to do this can be found in the ‘Transfers’ tab in My Account . Payments made by ‘Faster Payments’ will be available for lending in 1 -2 working days, or 3 -5 working days if made by a BACS transfer. If you want to make a large transfer of greater than £10,000 from your bank account by CHAPS please contact us on the Funding Circle website.

Further details of how to make these transfers can be found in the ‘Transfer Money In’ section of My Account .

If you are transferring in money using a bank transfer you may want to set up your Autobid settings or place loans on your Watchlist in advance, so that you can lend as soon as money has cleared into your Funding Circle investor account.

8. How can I transfer money out of my Funding Circle Investor Account?

 Details of how to transfer money out of your Funding Circle Investor Account can be found in the “Transfer Money Out” section of My Account .

9. How do I close my account?

If you have no outstanding loan parts, and have paid out all funds remaining in your account you can close your account at any time. Simply contact us through the Funding Circle website here .

10. What happens in the event of an investor’s death?

Until a personal representative (the executor or administrator) has been appointed for the estate of the deceased, Funding Circle will temporarily stop access to the investor account in question. We will require a copy of the death certificate; upon receipt we will stop the account from lending more funds by turning Autobid off (if applicable). We will then need a certified copy of the Grant of Probate or Grant of Letters of Administration, as applicable, before access is given to the personal representative. Funding Circle will continue to recover payments and interest earned on these outstanding loans until given further instruction by the personal representative. If the personal representative wishes to liquidate the account, Funding Circle can provide assistance in selling loan parts. When all of the loan parts have been sold, the personal representative can release the funds to a UK bank account.

The loan contracts that are already in place still stand and the funds would accrue on behalf of the estate to be distributed as instructed by the personal representative. an investor may nominate in their Will the beneficiary(ies) of the funds and proceeds from their Funding Circle account (subject to the applicable law). However, the account will not automatically be transferred into the beneficiary(ies) name(s) and a new account(s) would need to be created, subject to Funding Circle’s terms and conditions, and the loans transferred if the beneficiary(ies) wishes to continue to operate a Funding Circle account.


The beneficiary(ies) should be aware that the funds will be liable for tax and they should consult HMRC.

 

Repayment of loan parts

1. How do I receive monthly interest and loan repayments on my loan parts?

Funding Circle collects all monthly interest and repayments from borrowers which are then transferred into your Funding Circle investor account. The repayments are usually available for relending within 1 - 2 working days. You can review the status of a repayment on the My Summary page - if the status is "Processing" this means that Funding Circle is processing the repayment, and the status will return to "Live" as soon as a successful repayment has been made and credited to your investor account.

2. What happens if a borrower repays a loan before the term ends?

A borrower can choose to repay it's loan in full before the loan term ends. Your outstanding principal will be returned into your investor account where it can be lent to other borrowers.

3. Why do my monthly repayments from a borrower vary?

Each month you receive a principal payment and an interest payment from the borrower, which can be seen on your statements.

Principal is the money that is still lent out to the borrower on the loan part. Each month the borrower repays a portion of the principal outstanding on the loan part, and pays you interest on top. The sum of these two payments is typically equal each month, meaning each month you get paid a set amount by each borrower. The total amount you receive each month may be marginally different due to the rounding of repayments. This occurs because we round down interest and principal repayments to the nearest penny until a full penny has been accumulated at which point it is paid out to the investor.

All repayment schedules at Funding Circle are calculated up-front when the borrower accepts a loan. For example if an investor were to lend £920 to a borrower, on a one year loan, at a rate of 4.7% per year the principal and interest payments due would be the same as those below.

Funding Circle charges a 1% annual servicing fee for loan parts. This is based on the amount outstanding on each loan part, and is collected for each loan part if, and only if, a borrower makes a payment to you each month. This is also calculated up-front and has been included in the example below.

Since each month some of your principal is repaid you will need to continue re-lending out your repayments to continue earning interest on the re-paid principal. If you are using Autobid, it will automatically re-lend any repayments you receive on loan requests that match your criteria.
 

Repayment Example: £920 loan part earning 4.7% interest on a 1 year loan
 

4. What happens if a borrower becomes insolvent before repaying a loan?

If a business ceases to trade, and the loan has a personal guarantee, Funding Circle Recoveries and its debt collection agency will pursue the guarantors for the unpaid sums due. If the loan has an all asset security agreement attached, Funding Circle Recoveries and its debt collection agency will attempt to realise these assets to repay the sums due to investors. If the loan has specific asset security, Funding Circle Asset Finance will take possession of the asset and attempt to realise this asset to repay the sums due to investors.

If the loan does not have any security Funding Circle Recoveries will attempt to recover the maximum amount possible as a creditor of the business through the courts.

5. If a borrower is late paying do I need to do anything?

You do not. Funding Circle chases late payments on behalf of investors and when required will engage a debt collection agency to recover the debt.

6. What happens if a borrower misses a payment?

If the borrower misses a payment or only partially pays, the amount due to you and the other investors, we (ourselves or through an agent acting on our behalf) will contact the borrower to inform them that we will reattempt to collect the outstanding payment in respect of that loan the working day after the payment was due. If our reattempt to collect the funds fails 3 working days after the payment was due, the borrower's account will be treated as an overdue account and we will continue to attempt to collect the funds. We may refer the missed payment to a collections agency (the "Collections Agency"), who will attempt to collect the money on your and any other investors’ behalf and you authorise us to use the Collections Agency on your behalf. Any fee that the Collections Agency charges for this initial debt chasing will be added to the loan amounts they are seeking to collect and will not reduce the amount available for distribution to investors.

If the borrower misses, fails to pay or only partially pays three or more consecutive monthly instalments or four out of six consecutive monthly instalments, the loan will be placed into default and the Collections Agency will engage field agents to attempt to collect the total loan amount outstanding. The Collections Agency will deduct up to 40% of the amount it recovers from the borrower and the remaining proceeds will be distributed to investors; where possible this fee will be added on to the loan amount outstanding so as not to reduce the amount investors receive.

If the Collections Agency is still unable to collect the debt, Funding Circle will tell you that all of the outstanding loan parts will be novated to Funding Circle Recoveries Limited. We need to novate the debt to our subsidiary so there is only one claimant in any legal claim against the borrower, and in order to litigate against the borrower. You will have 14 days to opt out of this novation if you decide to pursue the borrower yourself. Funding Circle Recoveries Limited will then investigate with solicitors the amount of debt that is likely to be successfully recovered through the courts. If deemed appropriate, Funding Circle Recoveries Limited will instruct solicitors to file court claims to recover the debt. Funding Circle Recoveries Limited will pay back to investors in their proportionate share any funds successfully recovered, less its costs incurred during that recovery. Funding Circle Recoveries Limited will act in a fair and equitable manner to achieve maximum recovery for all affected investors, which may include extending payment terms or selling the debt to a third party.

Where FCRL holds an all assets security agreement in respect of a particular loan or the liabilities of a particular borrower, that security agreement will generally operate to secure all monies due from that borrower to investors on the Funding Circle platform from time to time. In the event that FCRL is required to enforce that security agreement and any proceeds of recovery against the assets of the borrower become available (after allowing for all of FCRL's costs of enforcement), it is possible that the available proceeds will not be sufficient to discharge all obligations owing by the borrower at that time to investors on the Funding Circle platform. If that is the case, then the investors shall only be entitled to recover their proportionate share of such recoveries. In addition, it is possible that there may be other creditors of the borrower that have claims that may be recovered in priority to those of FCRL and the Funding Circle investors, so the existence of such a security agreement should not be considered to be a guarantee of certain repayment in the event of failure by the borrower in meetings its payments.

In circumstances where the relevant loan or loans are a large asset finance loan, in the event of missed payments on a loan FCAF may take the following steps:
(a) FCAF may terminate its consent to the borrower's possession of the business asset or assets and the borrower shall be required to deliver the assets subject to the conditional sale or leasing arrangement to FCAF. FCAF may (or by its authorised representatives may), without notice and at the borrower's expense, retake possession of the assets;
(b) upon recovery of the business asset or assets, and failing any full settlement of all liabilities due by the borrower, FCAF may as legal title holder of the business assets elect to sell the asset or assets at such price that it deems fit. In such circumstances, any asset valuation report provided as described in paragraph 11 above will be indicative of the value of the business asset or assets only and any realisation or sale proceeds in connection with the sale of such asset or assets may be lower (or higher) than the value set out in such asset valuation report. FCAF is under no obligation to sell the asset or assets under the circumstances set out in this paragraph 12 for the value set out in the asset valuation report;
(c) FCAF shall (after allowing for the costs of recovery and sale) hold and manage the net Realisation Proceeds as outlined above and shall at its discretion and on the conditions set out below transfer such funds to Funding Circle to be distributed to the relevant investors in repayment of the relevant underlying asset finance loan or loans (in a proportionate manner);
(d) any Realisation Proceeds shall only be transferred to Funding Circle for distribution and payment to investors (i) at the discretion of FCAF; and (ii) within such period as FCAF deems reasonable following receipt of the sale proceeds and satisfaction of all related expenses.

Funding Circle will always keep you up to date with the progress of any efforts to collect missed payments, or collect on defaulted debt, which can be viewed in the My Account section of the website.

7. What are the estimated bad debt rates, and how are they calculated?

Bad debt rates are defined as the annual level of expected losses for a diversified investor. The rates account for any funds not repaid by borrowers and not recovered from the debt collection process. Estimated bad debt rates are annualised so they can be used by investors to help set their offer rates. Investors can calculate their expected annual return by simply deducting the bad debt rate from their offer rate.

Experienced Funding Circle underwriters assess every loan application we receive, and classify these into risk bands. Using data from Experian including the historical amounts of bad debts experienced in similar businesses, and their professional expertise, our underwriters have made their best estimates of the likely levels of bad debt that will be experienced in each risk band. Current estimated bad debt rates can be seen below. Funding Circle also adjusts the minimum target rates that businesses can ask for to reflect the different bad debt rates in each risk band.

Bad debt rates and minimum borrower target rates by risk band
 

 
Estimated bad debt rates should be considered across your portfolio of loans as a whole; bad debt rates are not set for each individual loan but for the group of loans within the risk band. To manage bad debt rates investors should spread their lending across lots of businesses which will reduce the impact of a default. If you are using Autobid it will not lend more than 5% of your total funds to any one business.

Whilst there are many different factors that affect the level of bad debt experienced across a risk band, we list the main factors accounted for below:

• Probability of default (PD) – the likelihood a loan will go into default in its lifetime. The likelihood that a loan defaults changes over the course of the loan. For example a 36 month loan is on average more likely to default in month 24 than month 36
• Exposure at default (EAD) – the average amount of money outstanding at the point a loan defaults. As Funding Circle only offers fixed rate repayment loans the exposure at default can be calculated easily if the average time of default is known.
• Loss given default (LGD) – this is the amount of money owed that is NOT recovered by our debt collection agency for defaulted loans.
• Probability of early repayment – the likelihood that a loan is repaid early, this shortens the life of an average loan. The likelihood of an early repayment changes over the course of the loan.
• Exposure at early repayment – the average amount of money outstanding at the point of early repayment, as Funding Circle only offers fixed rate repayment loans the exposure at early can be calculated easily if the time of early repayment is known.

Funding Circle provides estimated bad debt rates for each risk band that apply to 12, 36, and 60 month loans. Analysis of bad debt rates by Funding Circle underwriters suggests that expected differences between annual bad debt rates by risk band for 12, 36, and 60 month loans are at this stage not statistically significant, in particular, when accounting for the prudent approximations and estimates used in the calculations.

Funding Circle will however continue to monitor and refine analysis over time and if, contrary to our expectations, significant differences emerge between bad debt rates by loan term, or indeed for any other factor, we will provide further detail so this can be understood.

Bidding

1. How are rates set?

You decide the rate at which you want to lend at when bidding on new loan requests, from a minimum of 4% to a maximum of 15%.

Borrowers accept the lowest interest rate bids to fully fund their loan request. If the rates you bid at are too high, your bids may be undercut by other investors. This will mean that your money will remain un-lent for a longer period of time which could adversely affect the returns you receive at Funding Circle.

You can choose to purchase existing loan parts at the rates existing investors are lending at.

2. How should I determine the rate I set?

If you are lending quickly and easily using Autobid, when setting the rate of return you want you should consider your lending speed. Borrowers only accept the lowest interest rate offers, so if you set your return too high it will take longer for your money to be lent out and start earning interest.

If you are using advanced settings in Autobid, you are able to set your offer rates, see the effect of these changes on your lending speed, and see the estimated bad debt rates in each risk band. Using data from Experian including the historical amounts of bad debts experienced in similar businesses, and their professional expertise, our underwriters have made their best estimates of the likely levels of bad debt that will be experienced in each risk band. You may receive a higher or lower level of bad debt depending on the performance of the specific businesses you lend to. You should continue to monitor your lending speed when setting these offer rates.

If you are using advanced settings in Autobid, when setting your offer rates you should consider the borrower target rates in each risk band. Setting your offer rates closer to the borrower target rates ensures your bids are more likely to be accepted, meaning your money gets lent out and start earning interest quicker.

If you are lending by choosing the indivual loan requests you want to bid on, you should consider the borrower target rates in each risk band, the expected return you want to achieve, and the bids of other investors when determining the offer rates you set.

You can offer to lend to a business at rates of between 4 and 15%.

It is important to remember you only earn a return on money that is currently lent out. As you receive back some of your lending every month, you will need to re-lend this money to keep earning interest. Using our Autobid tool allows you to do this quickly and easily.

For more information please see the How to Lend page.

3. How long will it take for my money to be lent out?

The speed at which your money gets lent out will depend on the rates you choose to offer funds to borrowers in different risk bands. If you choose to offer money to borrowers at a low enough rate in a given risk band it will take up to 14 days to lend out your money.

You can ensure repayments are re-lent out to other borrowers quickly, by using our Autobid tool.

4. My money is taking a long time to get lent out, what should I do?

This is likely to be happening because you are bidding at rates that are too high. If you are lending quickly and easily using Autobid you could try reducing the average offer rate you are asking for using the slidebar. If you are using Autobid you should consider your lending speed when setting the average rate you want to offer.

See the How to Lend page for more information.

5. Is there a limit to how much I can bid?

There is no cap on the total amount you can bid on businesses at Funding Circle.
The minimum bid per business is £20. You can increase the amount by increments of £20. The maximum bid per business is £2,000, however you can make multiple bids on the same loan request. If you are using Autobid it will never bid more than once on the same loan request.

6. How long does a borrower have to accept a loan?

We remain in contact with our borrowers and guide them through the acceptance process. We encourage borrowers to accept their loan offer as soon as possible, but they are allowed up to 5 working days once the auction period has ended.

During this time, any bids that you have made on this loan request will still show in the My Account section of the website as live, and will become a loan part if the borrower decides to accept the loan offer.

7. Why has a business disappeared from the loan request page before the end of the auction?

 As soon as a loan is fully funded, businesses can choose to accept their loan at any point within the auction period. The majority of businesses will do this if they are happy with the rate, even if this is only by a few hours.

8. What returns can I expect?

Please see the Returns, Risks and Fees page for more information on estimated returns from lending at Funding Circle.

Funding Circle offers a marketplace where individuals can lend to and support small businesses in the UK. Funding Circle cannot guarantee a level of return on your lending; your returns will depend on the rates you choose to lend at, the risk bands of the borrowers you lend to and any bad debt you experience. Ultimately the success of your bids will be determined by our online auctions.

9. Why has the amount I have bid been reduced?

In certain circumstances on the margins of a loan request auction, part of your bid may be undercut by an investor e.g. if you have a £100 bid at 8.1%, another investor could partially undercut your bid if they bid £60 at 8.0%. In this circumstance your bid is adjusted down to £40 from £100, since only £40 is winning. You can bid the £60 portion that is no longer winning on other loan requests but you cannot cancel the £40 portion of a loan request that is still winning. 

10. What is a watchlist?

A watchlist is a list of loans that you are interested in, but haven’t yet bid on. You can add loans to your watchlist by simply clicking “Add to Watchlist” on a borrower loan request page. You can view your watchlist at any time in the My Watchlist tab in My Account .

11. Can I cancel a bid?

Unfortunately not. Once a bid has been made on a loan request page it cannot be cancelled. Your bid will remain active unless:

1. there are sufficient bids from other investors at lower interest rates to fully fund the total loan request;
2. the loan request period expires and the loan is not fully funded;
3. the borrower declines an aggregated loan request offer from you and other investors; or
4. we withdraw an auction for a loan request

12. How does Autobid work?

Autobid bids any money in your Funding Circle account on loan requests from businesses and buys parts of existing loans from other investors.

All you need to do is use the slidebar to set the average rate you want to offer and click turn on. That’s it, it really can be that easy!

Autobid will then offer interest rates on your behalf adjusted for the estimated level of bad debt in each risk band. The actual average offer rate that you receive will depend on the mix of different risk bands you lend to. When setting your offer rate you should consider your lending speed. Borrowers only accept the lowest interest rate offers so if you set your return too high it will take longer for your money to be lent out and start earning interest.

Autobid will lend a maximum of 5% of your total lending to any one business. The minimum amount you can lend to one business is £20 meaning your initial lending will be spread across at least 20 businesses if you lend £400 or more.

You can click on advanced settings to make adjustments. Here you can choose which risk bands to lend to, from very low risk to average risk, set your offer rates by band, and see the lending speed for each risk band. You can also reduce the maximum percentage of your total lending which can be lent to one business. This will increase the number of businesses your money is spread across but may affect your lending speed.

Autobid will only purchase loan parts from other investors which do not have any mark-up or mark-down applied by the selling investor.

For more information on Autobid please see the How to Lend page.

13. If I use Autobid will I be able to see which loan requests I am bidding on or have lent to?

 Yes. You can always see the loan requests you have bid on or lent to in My Account .

14. How can I change my offer rates in Autobid?

You can change the rates you want to offer to businesses at any time in Autobid, by simply turning Autobid off and adjusting the slidebar, or by clicking on advanced settings and adjusting the offer rates for each risk band. You should check your account over time to ensure that your offers are still competitive vs. other investors.

Once a bid has been made on Funding Circle, however, it cannot be altered whether made on an individual loan request or through Autobid.

15. Can I automatically re-lend my repayments to maximise my return?

Yes. You can do this using Autobid. Autobid will automatically bid out any money in your account on loan requests and parts of existing loans put up for sale by other investors that match your criteria.

16. How can I buy part of an existing loan?

If you are using Autobid it will automatically buy parts of existing loans listed for sale by other investors that meet your return criteria. Autobid will only purchase loan parts from other investors which do not have any mark-up or mark-down applied by the selling investor.

If you want to choose individual loan parts to purchase, simply click go to the Loan Parts page of Lend on the Funding Circle website. Select the loan parts you want to purchase, and if you have sufficient available funds, click the buy now button.

17. My bid was successful but has not yet become a loan part

Once an auction has expired a borrower has 5 working days to accept their loan offer. During this time your bid will remain as live and show as “ended”. As soon as the borrower agrees to the necessary legal contracts the bid will become a loan part.

Buying and selling loan parts

1. How do I sell my loan parts?

You can sell your loan parts easily in the Sell Loan Parts tab in My Account . There are two ways to sell your loan parts:

1. Autosale – To use Autosale simply specify the amount you want to raise and click Preview Loan Parts. Autosale will then show you a list of loan parts of a value close to the amount you want to raise. If you are happy with these click Sell Loan Parts and these loan parts will be listed for sale in the Lend section of the website.

2. Sell loan parts individually – Tick the loan parts you want to sell and then click Sell Loan Parts. If you choose loan parts, you can sell these at up to a 3.0% premium or discount. You can sell loan parts for a minimum buyer rate of 4% - the same minimum rate investors can bid in auctions.These loan parts will then be listed for sale in the Lend section of the website.

Loan parts will be listed for sale for a period of 14 days, during which other investors can review the loan parts and buy them if they wish. There is no guarantee that loan parts listed for sale will be bought by other investors. Investors will not be able to see their own loan parts listed for sale so that they do not mistakenly attempt to buy them. You can see your own loan parts listed for sale in My Account if you select “for sale” from the filter at the top of My Loan Parts. You can also see them in the sell tab under “loan parts for sale”.

2. Why do I have negative interest?

When you buy a loan part the purchase price is the outstanding loan amount plus any accrued interest plus any premium or discount added. This accrued interest will be deducted from your interest earnings. Your Summary page will show these cash movements in and out of your account.

On the next repayment date for the loan part you will receive the accrued interest you paid for the loan parts plus any further accrued interest from the day you purchased the loan part until the next repayment date. So in effect you have not lost any money.

3. How much will my loan parts be sold for?

The sale price for loan parts will be the outstanding principal amount lent plus the mark-up or mark-down you may choose to apply to the loan parts plus any interest accrued during the month. This means that if a loan part is sold midway through a month, all the interest that has been accrued up until that point but not yet paid to you will be included in the sale price so you don’t lose out. The accrued interest is updated at the end of each day, so the sale price increases each day until the point at which a borrower makes a monthly repayment.

4. What does "NF" mean at the beginning of a loan title?

When buying loan parts, any loans that begin with “NF” do not have a servicing fee attached. All other loan parts will incur a 1% annual servicing fee based on the principal amount outstanding. This fee is not included in the buyer rate.

5. Can I sell my loan parts at a premium or discount?

You can apply a mark-up or mark-down of up to 3% of the outstanding principal value to each loan part you decide to sell. You cannot sell a loan part if the simple interest rate the buyer would receive if they held the loan part to maturity, and the borrower continues to make all repayments on time after the application of the mark-up or mark-down ("Buyer Rate") is less than 4% per annum.

The mark-up and mark-down levels have been chosen to limit the risk of losses to purchasers on loans that pre-pay early. These levels will be reviewed quarterly, and adjusted if market conditions change and in particular if the Bank of England Base Rate changes materially.

6. Can I withdraw a loan part that has been put up for sale?

Yes. You can de-list a loan part that has been put up for sale, but has not yet been purchased by another investor, in the "Loan Parts for Sale" tab in My Account. Simply use the tick-boxes to select the loan parts you wish to de-list and click the green "De-List" button.

7. Are there any restrictions on loan parts that I can sell?

There are some restrictions on loan parts you can sell. Unfortunately you cannot sell loan parts:

1. With one repayment remaining;
2. Which have moved by more than one risk band or have no risk band;
3. That are in arrears (have currently missed a repayment) or are in default (that have missed three consecutive repayments)
4. If, after the application of any mark-up or mark-down, the simple interest rate the buyer would receive if they held the loan part to maturity, and the borrower continues to make all repayments on time ("Buyer Rate") is less than 4% per annum.

8. What is accrued interest?

Accrued interest is any interest that has built up, but not yet been paid, since the last successful payment by the borrower. Interest is accrued at the end of each day and once a borrower makes a payment to you it becomes earned interest available for lending.

9. What is the Buyer Rate?

The "Buyer Rate" is the simple interest rate the buyer would receive if they hold the loan part until maturity, and the borrower continues to make all payments on time. It takes into account the premium or discount applied to the loan part by the seller. If a borrower prepays a loan early or the buyer decides to sell the loan part early they may receive a return different to the Buyer Rate.The Buyer Rate does not include the Funding Circle loan servicing fee.
 

The Buyer Rate satisfies the following equation:

Where;

You can approximate the Buyer Rate by using the rate function in Excel. However, there are sometimes small differences due to the time to the next repayment not being fully captured in the pmt function.

10. Purchasing loan parts at a premium/mark-up or discount/mark-down

Loan parts purchased at a premium
Sale price = outstanding principal * (1 + premium %) + accrued interest
If you purchase a loan part at a premium you pay more for the loan part than the outstanding principal and accrued interest. This means the Buyer Rate is lower than the original interest rate of the loan part.

Loan parts offered at a discount
Sale price = outstanding principal * (1 - discount %) + accrued interest
If you purchase a loan part at a discount you pay less for the loan part than the outstanding principal and accrued interest. This means the Buyer Rate is higher than the original interest rate of the loan part.

Fully Worked Example – Secondary Market buying
Assume a loan part has 36 payments remaining, principal outstanding of £80, original interest rate of 9.1% and accrued interest of £0.03 (ie, 2 days interest).

If it is offered at par (no premium or discount) this will result in:
Buyer Rate = 9.1%
Sale price = £80 * (1 - 0%) + £0.03 = £80.00 + £0.03 = £80.03

If it is offered at a 3% premium this will result in:
Buyer Rate = 7.1%
Sale price = £80 * (1 + 3%) + £0.03 = £82.40 + £0.03 = £82.43

If it is offered at a 3% discount this will result in:
Buyer Rate = 11.2%
Sale price = £80 * (1 - 3%) + £0.03 = £77.60 + £0.03 = £77.63

The graph below shows the return experienced if the loan was fully repaid early at different points during the loan period. You can see that an investor who bought at the premium of 3% would receive a negative return if the loan was fully repaid within the first 3 months of purchase. This demonstrates the pre-payment risk of buying loans at a premium and the pre-payment advantages of buying loans at a discount.

11. What is the difference between the Buyer Rate and the original rate on the loan?

The difference between the original interest rate on a loan and the Buyer Rate depends on the following factors:
• Premium/discount %
• Number of payments remaining
 

12. What does it mean if a loan has no risk band?

A loan is downgraded to have no risk band if an event has occurred on that loan. These events could include Funding Circle receiving notice that a business is in administration, has ceased trading, is in liquidation, insolvency or some other event has occurred to alter the original risk band classification. Comments will be posted in the Summary section of the website if a loan has been downgraded to have no risk band. Many loans continue to repay to lenders when an event has occurred, and this is done as a precautionary measure. Loan parts in loans where no risk band has been assigned currently cannot be sold to other lenders.