113 UK businesses access finance | Weekly Lending Review

Week 29: 18 – 22 July

Last week, you and other investors helped 113 businesses across the UK access £9.2 million through the Funding Circle marketplace, and we’re looking forward to seeing lots of you on Thursday at our investor evening. The event will be filmed and the video will appear on our blog shortly after.

New loans available to you

There are currently 37 loan requests on the marketplace, and thousands of loan parts available for you to buy which will help you become diversified.

The total value of new loans listed on the Funding Circle marketplace was £9,423,160 averaging at £81,412 per loan. The largest loan value was £392,060 and the smallest loan value was £5,000.

Business loans available to bid on:

Gross interest rates are before fees and bad debts. Your actual return may be higher or lower as by lending to businesses, your capital is at risk.

Weekly marketplace trends

These graphs show the most recent activity on the marketplace.

The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn (The calculation is AGY = (1 + (two week rolling weighted average rate/12))^12 – 1). You can view the latest gross interest rates accepted on the marketplace on our statistics page.

Weekly average gross yield (2 weeks rolling)

Yield WLR29-16

Number of loans, value of loans and amount lent are reported weekly.

Number of listed loans per week

 Loans listed WLR 29-16

Listed loan value per week

 Loan value WLR 29-16

Total amount lent

 Amount lent WLR 29-16

Loan parts available to buy from other investors

 Loan parts WLR 29-16

News you should know

Improvements to the way loans are listed

Your money will now start earning interest even more quickly following improvements we’ve made to the way borrowers accept loans on the marketplace. Read more about how the improvement will make your funds work harder for you.

Regulator launches P2P review

The Financial Conduct Authority (FCA) recently launched a post-implementation review to ensure regulation for the industry remains relevant.

This review will not affect the ongoing process for full authorisation with the FCA. We continue to work closely with them and will confirm as soon as we have received full authorisation, which will enable us to launch the Funding Circle ISA. If you have any questions you can also join the conversation over on our forum.

Loans defaulted last week

Lawyers. Loan 8567. Risk band B

This London business was established in 2006 and has ceased trading.

Digital agency. Loan 5206. Risk band B

This Warwickshire business was established in 2000 and is being placed into insolvent liquidation.

Computer equipment supplier. Loan 4624. Risk band A

This Greater Manchester business has been running since 1997 and was placed into liquidation in June 2016.

Tuition services. Loan 9997. Risk band A

This Berkshire business was established in 2002 and is being placed into liquidation.

Architects. Loan 4706. Risk band A

This Yorkshire business has been running since 2006 and was placed into liquidation in June 2016.

Builders. Loan 10489. Risk band B

This Suffolk business was established in 2006 and was placed into liquidation in May 2016.

Publishers. Loan 9143. Risk band D

This Kent business has been running since 2009 and is being placed into insolvent liquidation.

Interior design. Loan 18230. Risk band A

This Essex business was established in 2012 and was placed into liquidation in June 2016.

Home technology specialists. Loan 18810. Risk band A+

This London business has been running since 2011 and is 3 months in arrears

Lending to businesses can deliver attractive returns, while helping businesses access the finance they need to grow. However, from time-to-time some businesses will be unable to repay their loan, which is why lending a small amount to lots of different businesses is so important. Watch our 90 second diversification video below to find out more. Remember, by lending to businesses your capital is at risk.

Our collections and recoveries team are working to recover the outstanding amounts for all of the loans described above and they will provide you with updates in the loan comments section on your summary page. Read how our collections and recoveries process works (part one and part two) on our blog.

Enjoy lending, the Funding Circle team

FCA launches post-implementation review of peer-to-peer lending

Recently, the Financial Conduct Authority (FCA) launched their post-implementation review of the crowdfunding industry, which is how lending platforms like Funding Circle are regulated. When regulation was first introduced in 2014, the FCA confirmed plans for a post-implementation review in 2016 to ensure regulation for the industry remains relevant, and we’re pleased the review has now been launched. At Funding Circle we have always supported regulation and we’re looking forward to responding over the next few months.

This review will not affect the ongoing process for full authorisation with the FCA. We continue to work closely with them and will confirm to investors as soon as we have received our full authorisation, which will enable us to launch the Funding Circle ISA.

You can find out more information by reading a statement from the FCA. If you have any questions you can also join the conversation over on our forum.

Enjoy lending,

The Funding Circle Team.

Improving your Funding Circle experience | Weekly Lending Review

Week 28: 11 – 15 July

Your money will now start earning interest even more quickly following improvements we’ve made to the way borrowers accept loans on the marketplace. Read more about how the improvement will make your funds work harder for you.

New loans available to you

There are currently 21 loan requests on the marketplace, and thousands of loan parts available for you to buy which will help you become diversified.

The total value of new loans listed on the Funding Circle marketplace was £11,335,560 averaging at £62,420 per loan. The largest loan value was £342,860 and the smallest loan value was £5,000.

Business loans available to bid on:

Gross interest rates are before fees and bad debts. Your actual return may be higher or lower as by lending to businesses, your capital is at risk.

Weekly marketplace trends

These graphs show the most recent activity on the marketplace.

The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn (The calculation is AGY = (1 + (two week rolling weighted average rate/12))^12 – 1). You can view the latest gross interest rates accepted on the marketplace on our statistics page.

Weekly average gross yield (2 weeks rolling)

WLR 28 yield

Number of loans, value of loans and amount lent are reported weekly.

Number of listed loans per week

WLR 28 loans listed

Listed loan value per week

WLR 28 loan value

Total amount lent

WLR 28 amount lent

Loan parts available to buy from other investors

WLR 28 loan parts

News you should know

In the latest instalment of our digging into the data series, find out how our robust credit assessment process works, its development and upcoming changes. We also discuss stress testing our loanbook to ensure Funding Circle portfolios are able to weather periods of volatility.

Loans defaulted last week

Art gallery. Loan 13879. Risk band B

This Sussex business was established in 2004 and has ceased trading.

Removal company. Loan 21469. Risk band C

This Essex business has been running since 2003 and is being placed into insolvent liquidation.

Manufacturer. Loan 5533. Risk band C

This Worcestershire business was established in 1991 and was placed into liquidation in March 2016.

Shoe manufacturer. Loan 3104. Risk band A

This Lancashire business has been running since 2000 and was placed into insolvent liquidation in July 2016.

Technology provider. Loan 4707. Risk band B

This London business was established in 2009 and was placed into administration in May 2016.

Steel manufacturer. Loan 9046. Risk band B

This West Sussex business has been running since 2005 and was placed into liquidation in March 2016.

Nightclub. Loan 15590. Risk band A

This Lancashire business has been running since 2011 and has become unresponsive after missing payments.

Home furnishings. Loan 16237. Risk band A

This London business was established in 2013 and is 4 months in arrears.

Electrical contractor. Loan 9181. Risk band D

This West Yorkshire business has been running since 2012 and has proposed a company voluntary arrangement.

Consultancy. Loan 9443. Risk band B

This Fife business was established in 2011 and has ceased trading.

Retail. Loan 12883. Risk band A+

This Perthshire business has been running since 2004 and was placed into liquidation in April 2016.

Plumbing contractor. Loan 9219. Risk band B

This North Yorkshire business was established in 2011 and has proposed a company voluntary arrangement.

Consultancy. Loan 21326. Risk band E

This Wiltshire business has been running since 2013 and was placed into administration in June 2016.

Mechanical engineers. Loan 17202. Risk band A

This County Antrim business was established in 2002 and was presented a winding up order in May 2016.

Garden online shop. Loan 10892. Risk band D

This Angus business has been running since 2005 and was placed into interim liquidation in June 2016.

Lending to businesses can deliver attractive returns, while helping businesses access the finance they need to grow. However, from time-to-time some businesses will be unable to repay their loan, which is why lending a small amount to lots of different businesses is so important. Watch our 90 second diversification video below to find out more. Remember, by lending to businesses your capital is at risk.

Our collections and recoveries team are working to recover the outstanding amounts for all of the loans described above and they will provide you with updates in the loan comments section on your summary page. Read how our collections and recoveries process works (part one and part two) on our blog.

Enjoy lending, the Funding Circle team

 

Improvements to the way loans are listed

At Funding Circle, our aim is for investors to earn attractive returns by lending to established businesses in a quick and simple way. As part of this commitment, we have introduced a new way for businesses to accept their loan contract before their loan is listed on the marketplace.

This has two main benefits for investors:

1) Your funds earn interest as soon as the loan is 100% funded: Previously, once a loan received 100% of its required funding, the borrower would have up to five working days to accept or reject the loan. However this meant your funds were tied up during this period and not earning interest.

2) More businesses accepting loans: Previously approximately 15% of businesses would reject their loans once fully funded. By accepting their loan contract before they are listed on the marketplace, this means that when you place a bid you can have confidence that once the loan is funded it will close automatically, and your funds will not be held in loans that can be rejected by the business owner.  

As a loan reaches 100% of its required funding, it will now automatically complete and you will no longer see it listed on the loan request page. On occasions it may appear that there are fewer loan requests for you to bid on, particularly on a Monday morning or after a bank holiday weekend. However plenty of lending opportunities will be made available for you every week. You can find recent marketplace data in our weekly lending review, found on our blog.

This new improvement follows on from the introduction of fixed rate loans in October last year and we are pleased to make it available to investors after many months of work. We hope you have found this post useful, and if you any questions then please get in touch or join the conversation on the forum.

Enjoy lending,

The Funding Circle team

Running a creative business? Check out Cathy’s 4 top tips for success

4 tips for success for every creative business

We caught up with Cathy Olmedillas, owner of The Anorak Press, who shared her advice for running a successful creative business.

Anorak Cathy business tips
Meet Cathy and find out how she produces immersive, fun pieces of culture in this short video.

The Anorak Press, launched in 2006, produces Anorak Magazine, for girls and boys between 6 and 12 years old, and DOT magazine, for preschoolers. To employ an editorial assistant and grow the business, Cathy borrowed £25,000 in January 2016.

Cathy’s top tips

1. Plan ahead

‘All of my lessons were learnt in a very harsh way, as I just kind of bumbled along from one sale to another, one invoice to another, one client to another with no strategy and eventually that catches up with you. You don’t have to have a major ten year plan, but just having a two or three month plan will help.

Write down as much as possible, for example what you’re currently doing and what you’re hoping to do. It will give you the perspective required to make the next decision. It’s also more likely to be the right decision if it’s got that kind of clarity attached to it.’

Anorak magazines

2. Know your audience

‘I always knew The Anorak Press had to have a website. Originally the website was aimed at kids, but I realised I couldn’t compete with the kids digital world. I also realised that Anorak magazine and DOT magazine were both parental purchases, not necessarily a kids purchase, so I aimed the website at parents.

I specifically wanted to showcase, in the best possible way, the quality of the products that we sell with beautiful photographs and to harness the power of social media to drive people to the website.’

3. Harness the power of digital

‘I’m pretty proud that 60% of our business comes from online and that the website is a nice hub where people can come to buy books and magazines. Customers can also look around and get inspired by creativity and kids culture, which is something I want to grow on the website.

Digital has been instrumental in our growth. It’s something that just keeps growing, which is why I want to do more with our YouTube channel as well as drive traffic back and forth between social media and our website.’

4. Hire a good web developer

‘The website was built by an amazing web designer and developer, Stuart Hobday, who was recommended by a friend. In the past he’s done a lot of very slick and very elegant websites for fashion brands and magazines.

I wanted that kind of slick and elegant style for Anorak because the product speaks for itself. It’s colourful, it’s joyful, but if I had added even more colours and madness the website would probably have drowned into a sea of colours. Stuart built a slick, elegant website within 6 weeks – it was brilliant!’

Looking for a web developer or to hire additional staff?

If, like Cathy, you’re looking for a business loan to hire additional staff, you can check you qualify in just 30 seconds.

Apply online and a member of our team will get back to you within 2 working days.

We’ve helped more than 15,000 businesses access finance for a range of purposes, and you can read more stories like Cathy’s here.

The evolution of the assessment process | Weekly Lending Review

Week 27: 4 – 8 July

In the latest instalment of our digging into the data series, find out how our robust credit assessment process works, its development and upcoming changes. We also discuss stress testing our loanbook to ensure Funding Circle portfolios are able to weather periods of volatility.

New loans available to you

There are currently 23 loan requests on the marketplace, and thousands of loan parts available for you to buy which will help you become diversified.

The total value of new loans listed on the Funding Circle marketplace was £9,214,900 averaging at £67,122 per loan. The largest loan value was £280,480 and the smallest loan value was £6,000.

Business loans available to bid on:

Gross interest rates are before fees and bad debts. Your actual return may be higher or lower as by lending to businesses, your capital is at risk.

Weekly marketplace trends

These graphs show the most recent activity on the marketplace.

The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn (The calculation is AGY = (1 + (two week rolling weighted average rate/12))^12 – 1). You can view the latest gross interest rates accepted on the marketplace on our statistics page.

Weekly average gross yield (2 weeks rolling)

WLR 27 yield

Number of loans, value of loans and amount lent are reported weekly.

Number of listed loans per week

WLR 27 loans listed

Listed loan value per week

WLR 27 loan value

Total amount lent

WLR 27 amount lent

Loan parts available to buy from other investors

WLR 27 loan parts

Loans defaulted last week

Outdoor footwear wholesaler. Loan 5347. Risk band B

This Edinburgh business has been running since 1995 and has commenced liquidation proceedings.

Printers. Loan 16960. Risk band A

This London business was established in 1995 and was placed into administration in June 2016.

Clothing wholesaler. Loan 9553. Risk band B

This Nottinghamshire business has been running since 2008 and was placed into administration in July 2016.

Accountant. Loan 13050. Risk band A

This Lincolnshire business was established in 2010 and has become unresponsive after missing payments.

Commercial vehicle stockist. Loan 19745. Risk band C

This Surrey business has been running since 2011 and is proposing an individual voluntary arrangement.

Design studio. Loan 8048. Risk band B

This South Yorkshire business is proposing an individual voluntary arrangement.

Renewable energy specialists. Loan 3762. Risk band B

This Carmarthenshire business has been running since 2003 and was placed into liquidation in June 2016.

CCTV provider. Loan 4731. Risk band A

This Derbyshire business was established in 1991 and has ceased trading.

Laundry service. Loan 15815. Risk band A+

This Hertfordshire business has been running since 2009 and is entering insolvent liquidation in July 2016.

Home interior installation service. Loan 8781. Risk band A

This Cornwall business has been running since 2010 and was placed into liquidation in June 2016.

Baby product specialist. Loan 9221. Risk band D

This Middlesex business was established in 2011 and has become unresponsive after missing payments.

Engineer. Loan 8077. Risk band B

This Merseyside business has been running since 2010 and has become unresponsive after missing payments.

Database service. Loan 14141. Risk band E

This Oxfordshire business was established in 2012 and is 3 months in arrears.

Restaurant. Loan 4173. Risk band A

This West Yorkshire business has been running since 2004 and was placed into liquidation in June 2016.

Lending to businesses can deliver attractive returns, while helping businesses access the finance they need to grow. However, from time-to-time some businesses will be unable to repay their loan, which is why lending a small amount to lots of different businesses is so important. Watch our 90 second diversification video below to find out more. Remember, by lending to businesses your capital is at risk.

Our collections and recoveries team are working to recover the outstanding amounts for all of the loans described above and they will provide you with updates in the loan comments section on your summary page. Read how our collections and recoveries process works (part one and part two) on our blog.

Enjoy lending, the Funding Circle team

 

£100 million investment to UK businesses through Funding Circle. June industry news

Newspapers - Copy

Marketplace lending platforms rush to fill funding gap

The Times considers how platforms like Funding Circle could help support small businesses following the EU referendum last month. We also want to reassure you about your ongoing relationship with us at Funding Circle, so if you missed it, take a look at our recent blog post.

Funding Circle agrees £100m deal with Europeans for small business

Ahead of the referendum, the European Investment Bank (EIB) committed to lending £100 million to businesses across the UK through Funding Circle. This new and exciting partnership is the first deployment of EIB funds through a direct lending, or peer-to-peer lending, platform and creates an important new channel to stimulate the real economy. The EIB have confirmed that the investment is unaffected by the referendum result. Further coverage in Financial Times, City AM and Business Insider, highlights how Funding Circle investors, big and small, have helped over 15,000 businesses, like Laird Hatters, to access finance.

Why the mortgage market is due to be shaken up by the tech revolution

Fintech isn’t only changing the way businesses borrow and investors lend, but it’s also shaking up the way individuals and families apply for mortgages. The mortgage industry has been lacking innovation for decades, however a new breed of digital companies are appearing, using algorithms and automation to streamline and speed up the process. From home-buying to investing, technology is transforming the way we go about our everyday lives.

Britain leads Europe in tech

There’s been a tremendous increase in the number of disruptive technology companies across Europe, and Britain is home to over a third of them! The remarkable resilience and talent within the sector is proven as the number of businesses nearing the $1 billion valuation milestone reaches an all time high this year. According to Business Insider, these are the businesses that have the ambition and rapid growth to join the expanding list of thriving fintech companies this year! Read more on the topic in City AM.

The unloved child of the ISA family

As you may know, the majority of direct lending, or peer-to-peer lending platforms, are still waiting to become fully authorised by the Financial Conduct Authority (FCA) in order to launch their Innovative Finance ISA. Although significant progress has been made, it’s important that the FCA completes this process in a thorough manner. In the meantime, we are pleased there are other ways investors can earn tax-free returns through Funding Circle. Take a look at our recent blog which discusses some great options.

UK SME Income Fund

And finally, if you are based in the UK, you can earn tax-free returns by holding shares in the Funding Circle SME Income Fund* through either a Stocks & Shares ISA or Self-Invested Personal Pension. According to recent figures, investors lending through the SME Income Fund have helped over 1,200 businesses across the UK, US and Europe to access finance.  Remember, by lending to businesses your capital is at risk.

*This blog post is provided for information purposes only and is not intended to be construed as an offer, invitation or inducement to engage in investment activity in relation to – or a financial promotion of – Funding Circle SME Income Fund. Funding Circle does not give investment advice or recommendations and this blog post should not be relied upon as such*

Take 10: How to turn your business social

Quick and simple ways to boost your business in just 10 minutes

For the third in our Take 10 series, we’re looking at how you can win business using social media.

Social Media Banner

What do we mean by social media?

Websites where users create and share content or participate in social networking, for example Facebook, Twitter, LinkedIn, Instagram and Google+.

Social media can help you acquire new customers

Social media websites, like Facebook and Twitter, have been around for over a decade and have become a key way for many businesses to promote their products and acquire new customers.

Facebook, for example, adds 500,000 new users every day so you can be fairly confident that a proportion of your target audience will have an account and will be logging on for business or pleasure.

Where are your customers

Before getting started, ask yourself which website your target audience is likely to use. We’d suggest you start small, trying out which social media platform works best for your product and then as you gain confidence (and content!) focus your efforts on one or two. You’ll quickly find yourself in a free soapbox from which to promote your business and it’ll become part of your marketing strategy.

Top tip: Facebook have created a handy short video showing you how to setup a business page in a matter of minutes. You can also find out how to sign up to Twitter here.

What is right for your business

It is also important to consider what is right for your business. Pinterest, for example, might be great for a business with attractive products, like a clothing retailer, but is unlikely to be relevant for an accountancy firm. Don’t forget, however, that the most important part is being where your customers are, so even if a platform works really well for your business, but not your customers then it’s unlikely to be right.

Best practice

To promote the best experience for users on social media, many platforms have rules that customise a ‘News Feed’ based on the likelihood that the user will engage with a post.

This means to guarantee your posts are seen by your target audience you need to make them engaging. To give your post the best chance, we’ve put together a couple of quick tips:

  • Keep your message concise: you only have a moment to catch people’s attention!
  • Attach an image: to ensure your post takes up more area on page (real estate) and is eye-catching
  • Calendar hooks: tie your post into a key date or relevant event that your audience may find interesting
  • Tag others: link to other businesses in your post, if applicable, to increase your exposure

How many times a week should I post to guarantee success?

There isn’t a magic number of times that you should be posting, it’s more important to make sure your posts are engaging for your audience. You want to post enough so your customers don’t forget about you, whilst not posting too much to appear ‘spammy’.

The frequency and type of posts can depend on the website you’re using. In our experience:

  • Facebook is best for posting blogs, running competitions or promoting business and industry news
  • Twitter is great for interacting with your customers in real time by joining relevant conversations and finding trending topics. It can also be a good place to post blog content
  • We’d suggest trying something different on Instagram, for example giving your customers an insight into the company through ‘behind-the-scenes’ photos. Instagram users are often less interested in reading longer blogs and press releases

Top tip: for best results, customise your posts and approach depending on the social media website you’re using.

Social media data can help you understand and target potential customers

One of the biggest benefits for your business is the data social media captures about your customers. Facebook, for example, will allow you to target specific groups of ‘prospective’ users through their audience targeting features. You do have to pay for this service, but even with small budgets this can be hugely valuable. We’ll be talking more about this in more detail in our next Take 10 instalment!

Keep track of your activity in one place

As your social media presence increases, and you find yourself posting across a number of social media websites, you may need some help in managing this. Here’s a couple of tracking websites we think do this best:

  • Hootsuite: schedule and report across three social media websites for free
  • SproutSocial: manage, schedule, report and optimise across a number of social media websites. Prices start at about £44 per month

We hope you’ve found this post useful. Come back for the next instalment of Take 10, where we look at the benefits of paying for adverts on social media.

The Funding Circle team

Find out how Funding Circle assesses loans | Weekly Lending Review

Week 26: 27 June – 1 July

We take credit assessment very seriously and have strong processes in place to assess businesses before they are listed on the marketplace. Meet Funding Circle’s Chief Risk Officer, Jerome Le Luel, and find out more in this short video.

New loans available to you

There are currently 32 loan requests on the marketplace, and thousands of loan parts available for you to buy which will help you become diversified.

The total value of new loans listed on the Funding Circle marketplace was £12,107,680 averaging at £61,108 per loan. The largest loan value was £344,880 and the smallest loan value was £5,220.

Business loans available to bid on:

Gross interest rates are before fees and bad debts. Your actual return may be higher or lower as by lending to businesses, your capital is at risk.

Weekly marketplace trends

These graphs show the most recent activity on the marketplace.

The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn (The calculation is AGY = (1 + (two week rolling weighted average rate/12))^12 – 1). You can view the latest gross interest rates accepted on the marketplace on our statistics page.

Weekly average gross yield (2 weeks rolling)

WLR 26-16 yield

Number of loans, value of loans and amount lent are reported weekly.

Number of listed loans per week

WLR 26-16 loans listed

Listed loan value per week

WLR 26-16 loan value

Total amount lent

WLR 26-16 amount lent

Loan parts available to buy from other investors

WLR 26-16 loan parts

News you should know

Last week, we gave an update following the referendum result. This week, we wanted to provide you with further information on what this might mean for those lending to companies focused on property development.

Loans defaulted last week

Home theatre system specialist. Loan 13012. Risk band B

This Dorset business has been running since 2007 and was placed into liquidation in June 2016.

Entertainment agency. Loan 13464. Risk band A+

This London business was established in 2008 and is 3 months in arrears.

Manufacturer. Loan 11906. Risk band C

This Warwickshire business has been running since 2010 and has become unresponsive after missing payments.

Clothing brand. Loan 18345. Risk band E

This Yorkshire business was established in 2013 and is 3 months in arrears.

Financial advisor. Loan 8529. Risk band A+

This Wiltshire business has been running since 1998 and has been placed into administration in June 2016.

Manufacturer. Loan 4175. Risk band B

This Leicestershire business was established in 2012 and 2 of the loan contract signatories have entered bankruptcy.

Hauliers. Loan 11361. Risk band D

This Lincolnshire business has been running since 2009 and is 3 months in arrears.

Plasterer. Loan 7247. Risk band D

This Manchester business was established in 2008 and is in the process of entering insolvent liquidation.

Engineer. Loan 10264. Risk band C

This Lincolnshire business has been running since 2012 and has become unresponsive after missing payments.

Firework display specialist. Loan 3100. Risk band B

This Cheshire business was established in 1998 and is in the process of entering insolvent liquidation.

Butcher. Loan 13853. Risk band B

This West Midlands business has been running since 2012 and is in the process of entering insolvent liquidation.

Lending to businesses can deliver attractive returns, while helping businesses access the finance they need to grow. However, from time-to-time some businesses will be unable to repay their loan, which is why lending a small amount to lots of different businesses is so important. Watch our 90 second diversification video below to find out more. Remember, by lending to businesses your capital is at risk.

Our collections and recoveries team are working to recover the outstanding amounts for all of the loans described above and they will provide you with updates in the loan comments section on your summary page. Read how our collections and recoveries process works (part one and part two) on our blog.

Enjoy lending, the Funding Circle team

Digging into the Data: The evolution of the assessment process

With the United Kingdom voting to leave the European Union, we wanted to assure you that despite the current political and economic uncertainty, Funding Circle has a robust credit assessment process to seek to ensure the businesses you lend to are resilient.

In this edition of Digging into the Data we will be looking at how our credit assessment process works in more detail, its development and improvement over time, and announcing the latest changes we are making. We will also discuss how we have stress tested our loanbook to seek to ensure Funding Circle portfolios are able to weather periods of volatility.

How does our assessment process work?

When assessing a business, we use a balanced mix of risk tools to ensure we create a full picture of the borrower’s financial health. These are centred around three key pillars; statistical credit models, expert judgment and policy criteria.

Statistical credit models

We have developed proprietary statistical credit models that rank potential borrowers by order of risk, taking into account thousands of individual criteria both from publicly available data sources (like credit reference agencies) and our own database of historical data (including more than five years of information on UK companies). These statistical credit models are used to assign a risk band to the loan, from A+ to E, and identify businesses we are unable to help.

As Funding Circle has grown over the last five years and more loans have matured, this has provided us with more credit performance data, allowing us to make even more accurate statistical credit models. Since we launched in 2010, more than 14,000 businesses have been funded on the platform. We regularly update our statistical credit models to ensure we leverage this valuable experience. As you can see from the below graph*, our 2016 models benefit from being built on a population size significantly larger than what was previously available to us:

1st graph

More data allows us to determine with more precision which factors influence whether a business is more or less likely to default on a loan. This means we get better at ensuring the right businesses are approved, creating more lending opportunities for investors while increasing confidence in the predicted loan performance. This accumulation of experience over time creates a virtuous circle:

2nd graph

Expert judgement

Alongside our statistical credit models, each business is manually assessed by a member of our credit assessment team.

Our team is made up of specialist small business credit assessors, with extensive experience working at some of the UK’s most well known banks. The team reference multiple sources of data; including financials provided by the borrower and leading credit reference agencies, plus the company directors’ own personal finances.

This creates a comprehensive picture of the business’ financial position – allowing the in-house credit assessment team to raise and clarify any potential questions with the borrower before making any lending decision. If the risk of default is deemed higher than our risk bands allow for, the business will be rejected.

By combining expert judgment with statistical credit models, we can make balanced credit decisions resulting in robust credit performance. More information on the expected and actual default rates for our risk bands can be seen on the statistics page.

Policy criteria

Funding Circle receives thousands of applications from small businesses, and having a simple set of policy criteria has enabled us to filter out businesses that have a low likelihood of being approved.

Policy criteria are designed to give direction to business owners so they know whether they may be eligible for finance. This means our credit assessment team only spend time on the right type of applications. As we have accumulated more data on UK businesses over the past five years, we have found that a certain number of creditworthy businesses might have been overlooked, despite being successful and healthy businesses.

To ensure we can help more creditworthy businesses, we regularly review these policy criteria and make any necessary adjustments, retaining the criteria that have proven to identify borrowers outside of our risk appetite. Our latest set of policy criteria are:

  • A minimum of two years trading history
  • At least 1 year of filed or formally prepared accounts
  • No outstanding County Court Judgments larger than £250

With the 2016 generation of statistical credit models and the latest version of policy criteria, we expect estimated average returns to remain consistent: for loans that were originated in 2016 the estimated average return is 7.2%**, with an expected annualised loss rate of c.2%. We also expect performance by risk band to remain the same, although as always, it is important to highlight that your capital is at risk when lending to small and medium businesses.

Consistent results over time

As a result of our improving statistical credit models, our ability to determine which loans are more likely to default has increased. When Funding Circle started, loans accepted on the platform had a similar default rate to those rejected at the final stage of the assessment process. As we have incorporated a wider variety of tools and data sources this ratio has improved, so that by 2015 loans rejected at the final assessment stage were five times as likely to default as those accepted on to the platform.

The below graph shows our bad debt performance against expectations for loans originated each year since Funding Circle started. The data shows the loss rate for loans after 12 months, net of total recoveries received for those loans, for each cohort as a percentage of our expected loss rate. Please note our 2015 cohort is not included as it has not yet seen a full 12 months of performance:

3rd graph

As losses are shown net of total recoveries, previous cohorts have received an additional 12 months of recoveries than subsequent cohorts. Over the last four years, loss rates on the platform have been consistently within or below expectations, despite making changes to our assessment process and introducing higher risk bands.

For up to date information on marketplace performance, including bad debt performance over time by year of origination, please visit our statistics page.

Are we prepared for a downturn?

Following the referendum result for the United Kingdom to leave the European Union, you may have questions about the potential impact an economic downturn may have on your portfolio. Although we are unable to predict exactly what will happen in the future, we have always made preparations to ensure that we are well equipped to weather periods of economic uncertainty.

In 2014 we invited an industry leading external consultancy, Hymans Robertson, to undertake a full assessment of our loanbook. Simulating economic conditions experienced in both the 1992 and 2008 recessions, we were able to see how returns could vary if we saw another downturn in the economy. The full results can be seen on our blog, and we are currently undergoing a new stress test with the results to be published in due course.

At this stage, we don’t expect any potential fallout from the referendum result to create a credit situation worse than previous recessions, and since the performance of our loanbook has remained stable over the past two years, we think that the 2014 stress test exercise still provides a relevant view of what an economic downturn could mean for returns.

In parallel, we have also deployed contingency plans regarding our portfolio tracking and collections activities, scrutinising any sign of stress and ensuring we are ready to take action quickly if credit performance showed any sign of deterioration.

Conclusion

We are committed to enabling investors to earn consistent attractive returns, by lending directly to British businesses and helping to support economic growth. We will continue to make improvements and adjustments to our assessment process, including in response to changing conditions in the wider economy, so you can have confidence lending to businesses through Funding Circle.

We hope you found this piece useful, and if you have any questions please join the conversation over on our forum, or if you have further questions about how our credit assessment policies work, you can watch a recent interview with our Chief Risk Officer, Jerome Le Luel, here.

Enjoy lending,

The Funding Circle team

* The graph shows the number of loans originated on the platform that were at least 12 months old, as of July for each year.

** You can see how our estimated returns are calculated here.