Helping businesses finance more of their requirements
Over the course of the past 5 years, we have extended the types of loans we offer to help more small businesses access finance. As businesses increasingly look to Funding Circle first, we want to help them finance more of their requirements through the marketplace.
This week we are updating clause 10 of our Investor Ts&Cs (and the relevant loan conditions stated at the end of this blog) to enable us to facilitate loans at different risk bands to the same borrower, to reflect the risk of each individual loan.
This means that in the event of a default, recoveries will be distributed according to the type of security a loan has. This will apply for new loans taken out after the Ts&Cs have been updated on 23 March 2016. Tomorrow, you will be required to re-accept the loan conditions before placing a bid, to ensure you are aware of what these updates mean going forward.
Borrowers at Funding Circle can already have multiple loans, and from tomorrow, these loans can be in different risk bands if there is different security. For example, a business may need two loans; one for working capital with a director’s guarantee, and one for a commercial mortgage, secured over a property.
Security may relate to one loan, or be “all monies” which means that subsequent loans have the benefit of the same security. Security may also relate to a specific fixed asset, such as a property, or be floating over all of the assets of the business.
Updates to clause 10
The updates to clause 10 will clarify how we will act in respect of 1) recovery strategy and 2) the priority of recovery distributions for multiple loans.
What does this mean if a loan defaults?
1)When a loan is defaulted, different strategies may be taken to recover money, depending on the security type.
For example, investors who have loan parts with a fixed charge on a property, may want that property sold as quickly as possible by a receiver; whereas investors who have a floating charge may wish to hold out for a buyer of the whole business because this may provide some equity to the property that they can benefit from. In this example, Funding Circle will act in the interests of the investors with the benefit of the fixed charge in priority to the investors who have the benefit of the floating charge.
2)The updates to clause 10, effective from 23 March 2016, will determine the priority of recovery distributions and these will be:
- first, fixed charge security on specific loans will rank ahead of all monies security;
- second, property loans will state how the security will be applied if there is more than one loan to the borrower; and
- third, where there is more than one loan benefiting from all asset security then the distributions of the loans will be equal.
This is a natural next step of the marketplace and will allow us to help more businesses with different finance needs whilst also being fair to investors.
Along with the investor and borrower T&Cs, the loan conditions (in relation to new loans only) will be updated to reflect these changes:
- clause 2.4: changes to clarify that it applies to loans in arrears;
- clause 3.2: changes to provide that interest at the contractual rate calculated on a daily basis continues to apply to any outstanding sums after the contractual term has ended;
- clause 4.2(o): this clause has been added to enable the loan to be terminated in the event of a material adverse change in the financial condition of the borrower or any guarantor;
- clause 7.2: changes to enable Funding Circle or its agent to inspect a borrower’s property or security; and
- clause 10.3: changes to ensure consistency with borrower Ts&Cs and guarantee.
- clarify how and when we process your personal data by giving additional examples;
- better signpost certain rights afforded to you;
- better explain how we run our business;
- confirm our expectations as to the maintenance of the security of your login and account details.
If you have any questions about these changes please contact us, and we will be happy to help.
The Funding Circle team