Investor evening part 3: co-founder Q&A
Q&A with Funding Circle co-founders
A lot of ground was covered with Samir and James, two of our co-founders, about the future of Funding Circle. Crucially, as we come towards the end of the whole loans trial, we discussed the need for a diverse mix of investors in order to create sustainable marketplace for the long term. The ambition for Funding Circle is to become like the London Stock Exchange for small business, where any investor, be they small or large, can lend to small British businesses.
This doesn’t mean our individual investors will become less important to us over time. If we look to the US market, regulation of the industry currently means we have more institutional investors but over time, we will work to ensure more individuals can lend. And vice versa in the UK market. Having this diversity will allow us to help thousands more businesses access finance, whilst ensuring investors continue to earn good returns.
Other key things to come out of the Q&A included:
Q: When will peer-to-peer lending be included within ISAs?
A: This was announced in the Budget earlier this year and consultation with Treasury is ongoing. We’re part of those conversations about exactly how it will work and when, and will update you as soon as we know more detail. In the meantime though, we expect the process to take about a year.
Q: The secondary market was less liquid at times earlier this year? Why was this and could we have more data on the performance of secondary market sales?
A: Just like any exchange, both the primary and secondary markets rely on supply and demand, and as we grow, we will need to ensure that one does not vastly outweigh the other at any one time. Record numbers of businesses came to Funding Circle at the beginning of the year and we saw 100+ loan requests listed a week, which led to a slow down for people looking to sell their loan parts. This has since improved and we will work hard to find a balance between the two. The aim is for both markets to be very liquid, which is why a diverse mix of investors – both individual and organisations – will be increasingly important, as business demand grows. We will also provide more data on secondary market fluctuations in the next couple of months.
Q: What does regulation mean for investors?
A: We actively campaigned for regulation for a number of years as we believe that as the industry grows, consumers must be protected. Specifically regulation means that peer-to-peer lending platforms will be required to have arrangements in place to continue to return available funds and administer existing loans in the event that the platform fails. All platforms will be required to hold capital reserves (extra cash) to help mitigate any business and financial risks, and every platform must have a complaints procedure in place (you’ll find ours in the FAQs).
The regulator has also issued guidelines on the information that a peer-to-peer lending platform should provide to investors. These include information on the average returns (after fees and bad debt but before tax) from the last few years, expected bad debt rates going forward, and information on whether a loan is secured, and if so, what form the security takes.
As part of our membership of the Peer-to-Peer Finance Association we already adhered many of these requirements and welcomed formal regulation.
We hope this has a useful overview of what was a very interactive and engaging session. We really enjoyed meeting more of you in person and found your feedback very useful. If you’ve got any further questions, then don’t hesitate to get in touch or join us on the forum, and we look forward to doing it again soon.