Understanding
risk

Managing your risk - What we do

• We only allow strong, established and creditworthy businesses into the marketplace

  Every business is individually reviewed by our team of experienced underwriters, using the same information the banks use. Our underwriters have previously managed the credit approval process of loans to small businesses for £100m+ loan portfolios, within large, mainstream lending institutions, and maintained very low annual bad debt rates of below 0.5%.

   

  Funding Circle is also a member of a number of databases where all the major banks and other commercial lenders share information on loans and other credit they extend to businesses, and major suppliers share information on how quickly businesses pay their bills.

   

  Every business listed has:

  • 2+ years' trading history
  • A strong current financial position and evidence that it can afford the monthly repayments on the loan
  • A healthy Experian credit report
  • No county court judgements of £250 or above
  • Had directors passed through identity and CIFAS fraud checking systems

• We take added security from the business and its directors

  To further minimise risk, we often ask borrowers for security, which adds another layer of protection for investors in the unlikely event that a borrower can't make their repayments. The type of security varies depending on loan size: for loans under £100k, we’ll often ask for a personal guarantee from directors or major shareholders. For loans over £100k, we'll often take asset security (whether that be over existing business assets, or the specific asset the business may be purchasing with the loan). A personal guarantee may also be taken for these loans.

• We clearly label each business with a risk band

  Once our team assess the business application, they will classify each business into a credit risk band. These risk bands group businesses by their level of risk and range from an A+ to C risk level, with A+ being the lowest risk (and therefore, the lowest interest rate).

  For each risk band we provide:

  • Estimated annual bad debt rates: our underwriters use historical information from Experian and their professional expertise to estimate the likely levels of annual bad debt that will be experienced in each risk band. These estimated annual bad debt rates are displayed below.
  • Minimum target interest rates: The target rate is the rate the business would like to borrow at or below. The minimum target rates a business can ask for are set by Funding Circle and are based on the risk band the borrower is in.
  • Maximum exposure limits: This is the maximum amount of Funding Circle loans that a borrower can have outstanding at Funding Circle at any point in time. Certain businesses that have borrowed through Funding Circle and that have shown a good payment performance over at least 6 months are eligible for a second loan, but their total borrowing amount will still be capped by these maximum exposure limits.

   

  Funding Circle’s risk estimates and maximum exposure criteria:

  Risk band	A+ (very low risk)	A (low risk)	B (Below average risk)	C (Average risk)
  Est. annual bad debt rate	0.6%	1.5%	2.3%	3.3%
  Minimum target rate	6.0%	7.0%	8.0%	9.0%
  Maximum exposure	£250,000	£250,000	£250,000	£125,000

• We provide transparency on businesses and loan history to our investors

  Funding Circle is one of the most transparent financial marketplaces you’ll ever find. We pass on as much information as possible, including:
  • The name of businesses borrowing: Over 90% of business borrowers disclose their business name on their loan request page, so you know exactly who you’re lending to.
  • The performance of every single loan that has been originated through Funding Circle: on our stats page, you can see the past performance of all Funding Circle loans, including average rates agreed, level of repayments and level of defaults. You can even download these in a spreadsheet.

• We have a professional service to chase any late payments

  If a business misses a payment to you, we have a professional collections agency that will chase the business on your behalf. We use exactly the same processes that banks and other financial institutions use.

• We have comprehensive arrangements to protect your money in the unlikely event that Funding Circle ceases to trade

  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 lenders and the business borrowers. These loan contracts would remain in place if Funding Circle were to cease to trade.

  We have put in place arrangements for Link Financial Outsourcing Limited to replace Funding Circle as the servicer of all loan contracts if Funding Circle were to cease to trade, ensuring that lenders continue to receive their repayments and that repayments are collected from borrowers each month. Link Financial Outsourcing Limited is an S&P rated servicer of loans that currently services over €5bn of loans, and partners with most of Europe's largest lenders.

  Any available funds in your Funding Circle lender account that have not been lent out are held on trust in a segregated client account at Barclays Bank plc, to which neither Funding Circle nor our creditors have access, and would be distributed to you if Funding Circle ceased to trade. 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. Funding Circle has a number of highly experienced financial services professionals on it's Board.

  
  
  JOIN NOW