Improvements to the borrower application process

At Funding Circle our aim is to provide more lending opportunities for investors by offering businesses a quick and simple way to apply for finance. As part of this commitment we have been reviewing our processes when a business applies to us, and will be making some changes to the information investors see on the loan description page. This will give our credit assessment team greater flexibility to deal with a business’s application on a case-by-case basis.

Management accounts

Previously we have required businesses that do not already have management accounts prepared, to produce them before applying for a Funding Circle loan. This can be a lengthy and expensive process for borrowers, particularly non-limited businesses, who often incur significant costs from their accountants as part of the process.

In order to support more businesses, we are amending this requirement. We will now require businesses to provide us with recent bank statements (typically three months) with every application. Due to data security these cannot be published publicly.

We will still continue to collect financials for the last two fully completed financial years for the business based on their published year end dates (filed or management). Most businesses have a year end of December of each year, so in these cases we would show the last 2 years of full performance from January to December.

In certain cases we may collect YTD management accounts, for instance where there has been a long time since the end of the last financial year and where we do this we will display more recent financial information to investors.

Bank statements provide a more reliable indicator of cashflow and a more recent overview of a business’s financials than management accounts. They also provide detailed information of actual live business activity, which cannot be replicated by management accounts. This introduction will allow our credit assessment team to deal with applications for businesses that do not typically prepare management accounts as a matter of course, generating more lending opportunities to creditworthy businesses.

Outstanding loans and credit

Additionally, we are making changes to how information regarding outstanding loans and credit is collected and displayed. Over the next few weeks we will start to require borrowers to provide the total amount of further debt taken out in the last 12 months over £25,000, rather than broken down by specific types of finance. We are making this change to help streamline the application process and avoid duplication.

Information regarding further debt will be communicated to investors in the loan description page. By collecting the total amount of further debt taken out in the last 12 months over £25,000, investors will be able to see any significant changes in liabilities since the last set of full accounts were filed.

As well as enabling more businesses on to the marketplace by providing a smoother and quicker application experience, introducing these changes gives our credit assessment team greater flexibility when dealing with business applications, and ensures we remain competitive in the market. It’s important to note that we will always assess a business’ ability to repay a loan, and only list those that pass our credit assessment.

You will notice some changes to how this information is displayed in coming weeks. If you have any questions about the kind of information you will be able to see going forward, then please get in touch or join the conversation on the forum.

The Funding Circle team

David De Koning

Head of Communications

 

15 thoughts on “Improvements to the borrower application process

  1. From an investors point of view, this dos not sound like an improvement. Reasonably sized businesses (those expect C-) should have management accounts. An overview of the P & L and balance sheet is essential to good management. Reviewing bank statements is good due diligence for FC but no substitute for management accounts. To expect investors to rely on filed accounts that might be 10 months old is not acceptable.

  2. I agree with the below comment. Businesses need to be prepared for additional cost if they are looking to borrow funds in this way. We, Investors, need to be looking at accounts which have been verified in certain way. Accountants that prepare this information are doing so based on their expertise and code of conduct as they should be qualified to do this. Funding circle is now going to take on this responsibility and I see too many risks attached to this. Can you please ensure all loans where financial data is prepared by FC should be marked clearly and we need to be informed and well aware of these. I would like to avoid loans of this type and would be looking to filter them out easily.

  3. As an ex lending banker, what I would prefer to see are a cashflow statement, and a business plan, both of which you should be receiving as part of FC’s due diligence, but neither of which is available to us as investors. Would it not be possible to provide sight of these (as .pdf files perhaps) to aid potential investors in making an informed lending decision? Stale filed accounts are of little worth, and without up to date management accounts we can have little idea of the ability of the borrower to fund the loan. You say you will have assessed this – so why not share the information you will have used to do so?

  4. Hi all, thanks for your feedback. It’s always appreciated. First and foremost, I’d like to assure you that every business listed on the marketplace has passed our rigorous credit assessment process and this change will not affect the quality of businesses coming through. Making this change will allow us to help even more creditworthy businesses access finance, as well as laying the path for an ever-improving credit model.

    We understand that some investors consider management accounts when making their lending decisions so please be assured that in many cases, we will still require them. This change in our policy will help smaller businesses who find the preparation of management accounts prohibitively expensive. Feedback from these potential customers has been that having to go to an accountant to do this before applying for a Funding Circle loan means they cannot apply for a loan at all. Of course if you would prefer to only lend to businesses who have formal management accounts, then you will be able to see this in the loan description page.

    We remain committed to providing a best in class experience for both investors and borrowers. Making this change will allow us to help more small businesses access finance, whilst providing you with more lending opportunities to healthy businesses looking to grow. Hope this is helpful. Please don’t hesitate to get back in touch. Nick – sorry to hear and hope you reconsider. If you would like to speak to someone directly about your concerns, please get in touch.

    • I have read the opening FC communication plus all the associated comments, and I’m still not clear what is being proposed. So FC, please could you answer the following question with a simple Yes or No (I’m pretty good at understanding Y/N answers):

      the change is to be that some businesses who do not have prepared management accounts will be able to access FC loans without them, whereas mgt acc’s will continue to appear for ALL companies who DO possess them. Is this correct? (Y/N)

  5. what is not clear is whether you will be asking for mgt acs where they exist and displaying them whenever possible? if so then i am relaxed. In practice any decent company has them – and i wont be lending unless i see them.
    If on the other hand you are suggesting you will as a matter of routine disregard them and substitute a “FC credit team stamp of approval having seen the bank accounts” then with respect i wont be lending much.
    The whole point of this site (for me at least) is that I get the info to make my own judgement and i stand and fall by it. I have no intention of subcontracting this judgement to the FC team – with whose rankings I frequently disagree – but crucially that doesnt really matter because i have the info to do so and its on my own head; its my bad debt and i can kick myself. The credit team is in no way accountable to me – i dont selct them monitor them train them or have much idea how they do their job and I certailny have no comeback to them if they get it wrong.
    The Q&A is regularly more important than your credit analysis team; and the Q&A is often driven by info in the mgt accounts (have you actually looked to see what percentage of questions arise from them ). If all you are doing is letting a few more businesses get listed then fine. if you are downgrading the information routinely avaialble to the investors then absolutely not fine and this is a massively retrograde step.
    i do incidentally absolutely agree with the sentiment that the business pamn cashflow forecast and projected P&L should be routinely made available to us.

      • 15 October 2014-I question that this is the case. I have raised a number of questions on Loan 8200- unfortunately my questions were moderated by FC. I simply asked for more up to date information as the filed accounts were 8 months out of date. The borrower stated that he had uploaded more up to date management account information, but it was not showing. FC simply said that the borrower did not need to show such information and clearly it was not updated to the site and I quote ” You do not need to provide more up to date information as requested by the investor. The figures uploaded comply with what we state businesses will provide”.

        The borrower’s reply was-A. 13 Oct 2014 18:07 – These figures have already been uploaded. I can’t see any way of uploading again in this area – are you not able to see previous information uploaded to funding circle?
        The step taken by FC is simply designed to make the access to their product easier for the potential borrower at the expense of due diligence. A poor policy on FC’s part- the people to suffer will be the lenders particularly given FC’s lack of checking on the value of personal guarantees given by directors.

        • Hi hototrot, we’ve just spoken with the credit assessment team and all accounts required and provided by the borrower during application were displayed as part in the initial listing of this loan. The borrower shared management accounts up to Jan 2014 which were included in the financials displayed. He was able to provide you with more up to date figures (to Jul 2014) in the Q&A when asked, but I can assure you that we have not withheld any information. If you’d like to speak with someone further about this, then please give our help desk a call on 0207 401 9111 or let us know how we can contact you directly. Many thanks, Funding Circle team

          • I note what you say, but your explanation does not accord with the borrower’s response to my question during the auction. Now I have yet another example of a borrower having provided FC with more up to date figures and yet FC are showing figures that are almost 10 months old- please review the questions and answers in loan number 8431 where the borrower clearly states that he has already submitted more recent management accounts to 31 July 2014 to FC and yet FC is showing figures as at 31 December 2013. Your current policy regarding the age of figures from potential borrowers is mystifying. I do not wish to be rude, but for FC to state that “First and foremost, I’d like to assure you that every business listed on the marketplace has passed our rigorous credit assessment process and this change will not affect the quality of businesses coming through. Making this change will allow us to help even more creditworthy businesses access finance” is a platitude unworthy of a pre 2008 Banker. You can contact me on 0845 310 2776- the name is Mike

          • Hi Mike, we have checked in with the credit team who have confirmed that they did receive some more recent accounts for loan 8431 like you say, but these were incomplete and not in a relevant format. I’d like to assure you that we will provide investors with all accounts that are used in our assessment of a business, but where the accounts do not naturally follow on from their previous accounts, or are incomplete, as was the case in this instance, it does not make sense to display these. However, should you wish to ask the borrower further questions about figures which were not used as part of our assessment, you can do this in the Q&A area, and they can provide them if they choose to. Hope this makes sense – someone from the customer service team will be in touch to discuss. Thanks, the Funding Circle team

  6. Not providing recent Management Accounts where the last statutory accounts are at least 4 or 5 months old is a regressive step.

    If the same company went to the bank, the latter would want up to date information and I fail to see why you should treat your potential investors as second class in their access to data. This may make the potential borrowers’ job easier/cheaper but it makes assessment of risk far harder for would be investors. From my perspective this is favouring the borrower at the expense of the lender. As the broker you are obviously agnostic as you obtain your fees come what may.

    FC states above that “In certain cases we may collect YTD management accounts, for instance where there has been a long time since the end of the last financial year and where we do this we will display more recent financial information to investors”.
    Question – case 8070 on your site has accounts to 31st December 2013 which is 9 months ago. If 9 months does not count as ‘long’, what exactly is FC’s definition of long??

    Bank statement may indeed be of use to an investor but as we, the investors, do not see them, there are of no value to us. This means that we have to rely upon FC’s credit rating which you then hedge in your Ts & Cs. Add in the fact that every now and again investors have strong question marks over some of your credit ratings…

    On a different tack –
    It would also be useful if the P & L lines displayed were changed by removing the Cost of Sale line and adding a new EBITDA one. The CoS line is superfluous as you provide both Sales & GP data. The EBITDA line would enable investors better to gauge what a business could afford in the way of cash payments.

  7. Old news, I know, but replying to H&B below: my experience in SME lending in Germany and emerging markets in E. Europe, Asia and LatAm suggests that (for existing businesses such as the ones served by FC) the past is a more reliable indicator than any business plans for the future. Therefore, while historical CF statements would certainly be valuable, I doubt that requiring business plans for this type of clients merits the extra trouble and transaction cost for borrowers that this is likely to entail (in terms of lowering risk for the lender).

    • Management accounts and bank statements, on the other hand, are naturally extremely useful in determining the current risk profile of borrowers …

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