Changes to Funding Circle’s UK rates

At Funding Circle, our aim is for investors to be able to earn attractive returns that reflect the level of risk involved when lending to businesses. As part of this commitment, we regularly review our rates, taking a number of factors into account including macroeconomic trends, expected bad debt rates and wider competition in the market.

Over the last six years you have helped over 17,000 small businesses access finance. This has provided us with more credit performance data, allowing us to make even more accurate pricing decisions.

Following our recent review, we wanted to let you know about some upcoming changes to the fixed interest rates on the Funding Circle marketplace.

The new rates will not affect any loan parts you currently hold, and will not apply to property loans, which are priced individually. Taking into account the rate changes across all risk bands, and the proportion of loans we expect to list in each risk band, we expect the estimated return for investors with a diversified portfolio, after fees and bad debt, to be approximately 7.0%.

As an example, If we applied these new rates to the last 100 loans accepted on the marketplace (as of 19th October 2016), we estimate that the annual return for those loans after fees and bad debt, but before tax, would be 7.0%.*

What are the new rates?

From 7th November 2016, we will begin to list small business loans in the UK at the gross interest rates below. These rates are shown before fees and bad debts.

new_rate_table_20161027

As some borrowers will have begun their application before the new rates are introduced, you may see loans listed at different rates for the same risk band and term length for up to 15 days from 7th November.

There will be no change to our estimated bad debt rates due to this change. You can see our estimated bad debt rates by risk band on our statistics page, and remember that by lending to businesses your capital is at risk.

If you use Autobid to lend to businesses, there is nothing you need to do as Autobid will continue to place bids on new loans at the new rates. The interest rates you currently have saved in your Autobid settings will still apply for buying loan parts on the secondary market. If you want to update your settings in order to buy loan parts on the secondary market at different rates, you can update them by logging into your account and navigating to Autobid.

How have the rates changed?

We are lowering rates for A+, A and B risk bands and increasing them for C (except for loans with a 6 month term, which are being lowered), D and E bands. You can see how the new rates compare to our current rates in the table below.

new_rate_table-changes-05

Why are the rates changing?

The new rates ensure we can continue to compete in an increasingly competitive market for lower-risk borrowers.

In addition, increasing the rates for some of our higher-risk bands will increase the loss coverage on those risk bands. The loss coverage is the number of times the estimated bad debt for that risk band would need to increase by, before it begins to affect the initial amount invested by investors. Loss coverage is important to consider when thinking about what might happen in an economic downturn.

The loss coverage for loans across all risk bands under the new rates will be 4.0x. Our latest stress tests estimate that in a downturn similar to the one experienced in 2008, bad debt for small business loans could increase by 2.0x. You can read more on how investor returns could be affected in an economic downturn here.

What does this mean for overall returns?

We anticipate that returns after fees and bad debt, but before tax, for investors with a well-diversified portfolio will not be significantly impacted by the new rates. There will be no change to our estimated bad debt rates due to this change. Looking at the proportion of loans we expect to list in each risk band after the new rates are introduced, we estimate that the annual return for investors across these loans, after fees and bad debt, will be approximately 7.0%.

This is similar to the estimated annual return for loans originated on the Funding Circle marketplace since 2014, seen in the table below.**

origination-date

Since the Bank of England’s decision to cut the base rate in August, we have seen a general trend of falling interest rates across the wider market. The 7% estimated return is market leading when compared to other major peer-to-peer lending platforms. Past performance is not a guide to future performance, and by lending to businesses your capital is at risk.

This blog was updated with further information on 31/10/2016 at 18:00. Please note these rates only apply to the UK marketplace.

Enjoy lending,

The Funding Circle team

*This estimated return is an estimate of the annual return after fees and bad debts that investors could earn. It is calculated by taking the gross interest rate less fees and estimated bad debts that will occur in the future for each of the last 100 loans accepted on the marketplace (as of 19th October 2016). The average return is compounded and before tax. You can see the full calculation for the current estimated return, which looks at the last 100 loans accepted on the marketplace, here.

**Data correct as of 1st October 2016. You can see the full calculations for past performance by loan origination year here.

Jack Pritchett

Senior Communications Manager

 

87 thoughts on “Changes to Funding Circle’s UK rates

  1. Hi

    Would be good for transparency that you clearly stated in the post what the rates were before and after the change.

    Thanks

  2. So what were they before? – very badly, or cleverly worded announcement that makes no reference to what the change is? Increase/decrease etc?!

  3. From my current Autobid (un-editable section)

    A+ 8.00%
    A 9.30%
    B 10.40%
    C 11.80%
    D 14.00%
    E 18.00%

  4. Jack, when are you planning to give normal lenders a chance to buy into the D and E band loans, by preventing automated bot users from hoovering them up in seconds?

      • Mostly because they sell out quickly (28 minutes for one case) and then over a fifth of the parts on some of those loans are on the secondary market at prices which cut the “E” rate to nearer a “B” risk rate.

    • Hi SteveT, thank you for your comment. We appreciate loans at higher risk bands are popular, and can fill quickly. Although we do not ban the use of scripts, we carefully monitor their behaviour to ensure no one investor is taking more than 20% of each loan.

      Thanks,

      The Funding Circle team.

      • Yes, I’ve heard that mantra from FC many times over the years. But why, when you have over 50,000 registered lenders, do you still permit as few as 5 of them to hoover up 20% each of the most popular loans within seconds. Reduce your arbitrary limit to 1% and 20 times as many lenders would get a look in.

      • If the less risky loans are getting a reduced percentage we need access to the more risky loans. I feel cheated and at a disadvantage by only being offered over priced second hand ones. I really think FC need to even the playing field across all it’s lenders.

  5. again I wish to ask what the rates were so that we can compare them to existing rates.

    Based on loans i have already it seem that this is lowering the rates but i would prefer some more concrete numbers on which to base my choices.
    Thanks.

  6. You would benefit from being transparent about the nature of these changes – i.e. are rates up or down? As it is, you’re going to be left with egg on your face from a PR / comms point of view, as the above comes across as very cynical, regardless of how well-intentioned it might be.

  7. Re Mike’s comments of reduced rates for A+/A/B, not looking good for lenders given FC often give loans a rating one/two risk bands better than the borrower’s finance suggest imo.

  8. Some transparency would be helpful please. It looks as though the rates have gone down by about 0.5% on average but why don’t you please come clean and show the before and after rates so we can make a better judgement.

    • Hi David – thank you for your comment, and apologies if the blog was not clear. This has now been updated to show a direct comparison with the current rates.

  9. Hmph. So many rates being reduced, yet no changes to the estimated risk rates. Surely this means your forecast 7% return will reduce, or are investors, on average doing better than that at the moment? My portfolio certainly isn’t. A bit more insight into why this is happening please – if it is to remain competitive in the market, so be it. If it’s just because you feel like it, then I may well be considering a shift towards the higher rates I get elsewhere.

    • I think what they are doing is adding more premium to the high risk
      loans (D & E) and reducing the return of the lower A+/A/B rates. The
      effect being it’s impossible to get a 7% return on A+ even if no bad
      debt, whereas a D or E should get a return higher than 7% if bad debt
      rates are accurate e.g. 8% annual equivalent bad debt rate showing for
      E, therefore a 60m E should theoretically return 12.9% (21.9%-8% bad
      debt-1% mgmt fee). As risk should lead to reward, it makes sense to me
      that there is a risk premium to the higher risk loans. To get a 7% net
      return therefore requires a particular weighted mix of loans across the
      board – presumably FC know the current spread of loans by type, and
      using this weighting for an “average” investor have arrived at the 7%
      net return.

      • Yes, I see what you mean, but I don’t think the ‘diversify’ mantra is clear about diversifying across risk bands as well as companies. I’m lending to 500+ companies but virtually all B grade or better.

        The only trouble with your E example is that you need lots like that to achieve the 8% bad debt average. With only one (or few) it’s just Russian Roulette.

        I thought the idea was that any given grade should deliver about 7% if you held enough: Rate – Bad Debt at that rate – 1% fee = about 7%.

        Clearly that is not the case for the future. So the options are:
        – Put up with lower returns on loans that FC deem to be safer (I’m often not so sure).
        – Scrap with everyone else to increase exposure to the few-and-far-between higher risk band loans.
        – Ship out, which would be a shame, because I actually enjoy the FC process!

  10. Given that we are lending to some very small businesses, and we are about to go through Brexit and the additional uncertainties that will bring – Surely rates should be going UP not down

    Rationale for this downward move in rates?

  11. You’ve done it again! Congratulations.

    Now, as well as ensuring terrible applications from clients (some asking for six figure sums to “support growth”) and not allowing me to price this risk by setting my own interest rates as could be done in the past, you now increase my risk by changing nothing other than what I can earn to the downside. My money will be finding its way elsewhere.

  12. So presumably this means rates are increasing! My portfolio of over 600 loans is showing a low 6% return and this is deteriorating markedly week on week – with barely a 0% return over the last 3 months. I think there is a significant problem with bad debt that is not being addressed or acknowledged. This certainly appears to be the case in my portfolio and with such good diversification I struggle to believe that I am a statical anomaly. Why do you not show any sort of short term performance figures to give comfort to lenders that the situation is stable?

    Sadly due to a complete lack of responsiveness from yourselves I am now reducing my exposure to this platform as a matter of urgency.

    • Hi AndyD, thank you for your comment. As you are lending to your own individual portfolio of loans, returns will vary from investor to investor, however over the past few years bad debt across the loanbook has remained consistently within expectations. You can see the estimated and actual bad debt rates per risk band on our statistics page, found here: http://www.fundingcircle.com/statistics. If you wish to discuss your own account please get in touch with us at contactus@fundingcircle.com and we will be happy to discuss it further with you.

      Thanks,

      The Funding Circle team.

      • I notice you didn’t answer my question posted above
        —————–

        Given that we are lending to some very small businesses, and we are about to go through Brexit and the additional uncertainties that will bring – Surely rates should be going UP not down

        Rationale for this downward move in rates?
        ———————

        Given that risks are made up of:-

        1) Specific business risk/ Credit worthiness
        2) Sector risk.
        3) Term risk (as “visibility decreases with time)
        4) Economic risk (early/late cycle etc)
        5) Specific “special situation” risks
        6) The risk free return on money (gilt yields)
        7) Inflation risk for fixed term loans.
        8) Equity risk premium (or corporate bond risk premium)

        Risks 1-4 inc will, to some degree be built into you current assessment.

        5 – We are now in a significant situational risk – Brexit, that must at the present time carry an ADDITIONAL risk premium.

        6 – gilt yields have not moved down appreciably although I grant you the base rate has fallen by 0.25%

        7) Inflation was relatively steady at about 0 – 0.6% but is expected to increase to a peak in late 2017/early 2018 at 3%, well within a 5 year loan

        So overall we will be benefiting from a 0.25% BoE drop but losing out to the tune of about 2% relative to inflation and accepting a higher risk with no premium paid as a result of Brexit uncertainty.

        Why are rates going down when everything tells us rates should be going up?

        An answer detailing the above would be valuable to me and many others here.

        • Thank you for your comment. Not all rates are being reduced – rates on higher risk bands are increasing and across the loanbook we expect the estimated return for investors to be 7%, which is similar to the estimated return over the past few years. We factor changes in macroeconomic conditions into our pricing models, and although there are no changes to the estimated bad debt rates as part of this change, there is significant loss coverage across all risk bands should the UK enter an economic downturn. Across the loanbook, the new rates will provide a 4.0x loss coverage across all risk bands. For context, in a downturn similar to the one experienced in 2008 we estimate that bad debt would increase by 2.0x, so although we can’t predict exactly what will happen in the future, returns are likely to remain attractive even in the event of a downturn.

          • For systemic risks (Brexit) the risks are unlikely to decrease for any company until there is certainty about the economic environment.

            I don’t think your reply addresses

            1) The individual elements of my post, particularly the “real return” risk from inflation as a result of the £ 18% fall which is a “known” and could reduce effective rates by about 2 – 2.5%

            2) The Brexit risk to SME’s is not really covered in your post.

            I confess being a relatively experienced stock market investor but new to this end of investment I don’t understand your statement

            ” there is significant loss coverage across all risk bands should the UK enter an economic downturn. Across the loanbook, the new rates will provide a 4.0x loss coverage across all risk bands. For context, in a downturn similar to the one experienced in 2008 we estimate that bad debt would increase by 2.0x”

            A better explanation is required.

            I don’t think you have addressed the points I raised “head on”

      • Oh I have tried that and 4 weeks later am still awaiting a response to my complaint. Providing estimates of returns are all very well but seem to be both spurious and inaccurate based on recent performance.

        • Hi AndyD, I understand your complaint is being handled with our Investor Support team, and you are due a response by the end of this week, in line with our official complaints process.

  13. is there anyone else out there that would also like to see more ‘activity’ in recovering bad debts? I get £££ lost and pp recovered. But cant see real transparency in actual recovery targets, performance against targets etc. And does anyone know the ‘subsidiary company’ that the defaults are sold off to?

    • i would like to see, whats being done on recovery, also due dilegence in the first place of giving loans, as some of my loans have defaulted before the 6th repayment , not impressed at all

    • Hi Robin, when a borrower is unable to repay their loan our in-house Collections and Recoveries team work hard to recover as much of your funds as possible, we do not outsource defaulted loans to an external debt collections agency. It can take time for recoveries to reach your account – on average it can take 6 months but over five years we estimate the overall recovery rate on defaulted loans across the loanbook to be 50p/£. You can read more on how recoveries work here:https://www.fundingcircle.com/blog/2015/11/digging-into-the-data-how-long-does-it-take-to-receive-recoveries/

      Thanks,

      The Funding Circle team.

      • Sorry – I should have been clearer. I was not suggesting that debt recovery was placed with external collections agencies but was enquiring concerning the transfer of the Loan / Debt to Funding Circle Subsidiaries – With further reading I have answered my own question I think – “When a loan is placed “In Default”, the investors are informed (in their loan comments on the summary page) that their loan contracts will be assigned to Funding Circle Trustee Limited (“FCTL”). It was the FCTL link I was looking for.

  14. This lack of transparency adds one more bit of weight to my feeling that its time for me to exit FC. Some of the other issues…. fixed rates rather than auction, little or no information about businesses when they are applying for loans; lack of support from FC when lenders ask businesses for more info;Lack of variety in the loan book ( I’m not that interested in providing bridging loans to property developers)…

  15. It does seem to me that on a typical portfolio with a lot of As and Bs that the average rate will be lower going forward.
    I have seen a few more defaults of late as well but on average I would say this P2P investment has performed better than others that I have (Zopa, Ratesetter, Wellesley).
    What are other FC investors comments on the best P2P rates available?

    • Risk adjusted returns were best on Ratesetter until recently where 6-6.5% was achievable.

      Its now running between about 4.8 – 5.4% which is quite a drop. Given its to a degree “backed” and FC isn’t and Brexit risks are certainly there, I think P2B rates should be going up not down.

      Are more moving from FC and P2B to “backed” P2P?

      • Until recently, I had about as much in RS as in FC, attracted – as you suggest – by the contingency fund. Have since reduced my exposure to RS, as I’ve been unable to get 6%. Feel that FC (mine currently running about 7%) without backing currently beats a ‘backed’ 5.x%.

      • Like you I have found that Ratesetter rates have dropped dramatically of late. Latest matched order for re-investment 4.7% in the five year market. This doesn’t excite me at all after I have paid tax on it.
        Since Zopa introduced their Zopa Plus lending with higher rates I have begun to put money back into this again, but this is unsecured and untested over a longer exposure period so may yet prove to be a poor investment.

        • How long have you been in the Zopa Plus and what’s your default rate?

          The question for P2P investors is that inflation is set to increase and Brexit risks (real or imaginary) are now in play.

          Surely that demands a higher risk premium for investors, but its going the other way?

          WHY?

          • Dear Truth
            I have been using Zopa Plus since they introduced it but that wasn’t long ago, just months. Too early to judge on default rates.
            I have £22,000 lent across 1900 Zopa Plus P2P loans at an average loan rate of 11.4% with a “projected” rate after defaults and fees of 7.0%.
            Currently there are 40 borrowers (2.1%) who have missed some repayments with a total of £81 defaults. As I say though, too early to tell what the eventual default rate will be.
            It seems like a useful comparison to benchmark this vs FC over time.

          • Thanks for the info Rob, I was happy with 6+% with RS but have moved to FC but have no history with that format but claims about 7%.

            Personally, I think they are doing business loans too cheap, because they get paid either way, its the investors that take the hit.

            Banks used to do “rock solid” business loans with security at 12%+

            Are they promoting traffic for fees over investor returns?

            I’m beginning to wonder given the rate reduction announcement today.

            I was wondering if rates were going to go up not down.

  16. It would be helpful to understand the rationale for changing the rates. Presumably there are not enough applications at the A+ to B range or competitors are offering those businesses better rates.

    It would be good to understand how some businesses are assessed as A/B when there credit ratings are not that great and also when their net assets are weak or they have made losses recently.

    It is always strange how little recovery of bad debt there is especially when companies had had large loans within the last year. What have they done with the cash apart from pay running costs.

    Apart from that, funding circle is working well and returns are better than other P2P lenders.

  17. With rates going lower, it’s about time FC reduced their fees as – if they stay the same as now – they’ll be going UP relative to returns to lenders. Seems FC is falling into the same mold as other financial firms.

    • I would tell every investor not to touch B-C-D Risk rated, FC should not be lending money to anyone who is not prepared to guarantee 50% plus against the loan,see if they would then down grade the term and risk. The concept was good 6Years ago, why change something thats not broke.

    • Hi Clive – Our 1% annual servicing fee is comparable with the wider industry and helps cover the cost of running the website and maintenance of loans. Although rates are being reduced on some risk bands, the annual estimated returns for well-diversified investors across the portfolio will not be significantly affected. It is important to note that the annual servicing fee is not linked to the return received by investors.

      • Your stats show you’ve lent over £1bn in 2015/2016. Hence your 1% (which is way in excess of outfits like Fidelity FundsNetwork) has paid you £10m. Wouldn’t seem so bad if we saw any website improvements (when/what was the last significant change ?), or maintenance of loans. Perhaps you could put some towards managing property loans, as I suspect everybody whose lent money will tell you FC seem completely disinterested in the lender’s viewpoint on late loans.

      • How can you diversify when you barely see C graded loans and never see D and E apart from once a blue moon?

  18. Due to the lack of real data, I see little point in investing other than for property loans. At least, the rate is “reasonable” and the risk is covered – I hope – by discernible assets. Even for these, better rates are available on other platforms.

    • They are all much the same but others tie you in for longer. I would still recommend many different platforms to spread risk with a ‘mean average’ more important than competitive spikes.

      • FC is especially bad at communication and sharing out the risk/reward with a massive managment fee added in. In my case they take about 10% of my earnings, if I stayed with this account and these new rates I estimate they would take about 17% of my earnings. That is off the scale and should be shouted from the hill tops.

        Many other portals offer far better deals

        Tie in for longer, many portals have very liquid secondary markets charging no management fees for the service, how can FC explain that?

        • Hi Bill, our 1% annual servicing fee is comparable with the wider industry and helps cover the cost of running the website and maintenance of loans. Funding Circle does not actively manage your portfolio, so this isn’t a management fee, and isn’t linked to the returns investors receive. The 0.25% fee for selling loan parts is one of the lowest in the industry and helps to cover the operational costs of the secondary market.

    • Hi Deep – Thank you for your comment. Investor returns at Funding Circle have remained stable over the past five years. You can see the actual annual return to date for loans by year of origination in the above post, and you can read more about how Funding Circle returns compare with other investments in this blog from earlier in the year. Remember, by lending to businesses your capital is at risk. https://www.fundingcircle.com/blog/2016/03/digging-into-the-data-how-returns-at-funding-circle-compare-to-other-investments/

  19. I have found that turning off Autobid produces the biggest increase in yield. It’s a hassle but it’s worth it, otherwise the losses (depending on your over all investment) at 0.07% of total per part can really crank up. Diversify in many hundreds of loan parts with a large ratio C,D,E at no larger than £30 per part seems to do the trick and consistently yields 7% for me.

  20. Hi all,

    As we collect more credit performance data on businesses, we are able to make increasingly tailored and even more accurate pricing decisions for businesses listed on the marketplace. The new rates will provide a balanced return across all risk bands.

    As the rates are changing individually depending on the risk band and term length, and investors lend to their own individual portfolio of loans, your estimated return after fees and bad debt will depend on the risk band distribution of your own portfolio.

    Although we can’t predict how the rates will affect individual returns for investors, looking at the proportion of loans at each risk band we expect to list on the marketplace after the new rates are introduced, we expect the estimated annual return for investors across these loans, after fees and bad debt, to be approximately 7.0%.

    You can see the current rates here (These will be updated on November 7th):
    https://support.fundingcircle.com/hc/en-us/articles/214636066

    Thanks,

    The Funding Circle team

    • Hi FC. Yes, I get all that. But I say again, you’re not altering the estimated bad debt rates. So either investors (on average) are doing better than 7% now, or (on average) will be doing worse under the new lending rates. Which is it?

      BTW even if YOU are getting more accurate info from/on borrowers, it certainly doesn’t feel like that as an investor. Vague, short explanations and rarely a question answered.

    • That doesn’t explain why you are reducing the A+/A/B interest rates. The market place is more unstable, not more stable than previous years (Brexit for example), and as such the rate should be rising if anything, not decreasing. Are you going to take the % cut out of the lending fee you are charging us investors? Or at least reflect a lending fee cut in proportion to the lending rate cut.

    • And I’ve just seen an A+ loan listed with the loan amount being approximately 250 times the Net value in the company !. Guess it makes sense to somebody, though not to me.

  21. management fees un changed I guess???????

    Acting more and more like a bank, I will continue my disinvestment strategy.

  22. Let’s not forget that with fees being charged on the volume of lending vs. what investors returns there is inherent conflict of interest in the model whereby FC is incentivised to give out more loans rather than necessarily concern itself about investor returns. As FC grows bigger and attracts more ‘mainstream’ investors the incentive to offer high rates of returns to retain investors is declining.

    • Hi Investor, thank you for your comment. Approximately 30% of our fee revenue comes from recurring repayments from businesses every month, and if a business defaults there are no fees on any subsequent repayments. In addition, we publish default data on our statistics page, so there is a clear incentive for us to facilitate high quality lending. Since 2012 bad debt has been consistently within expectations, and you can see this in more detail here: http://www.fundingcircle.com/statistics.

  23. I shall be divesting to the other competitors in the market place. FC, you are supposed to be looking after your investors, not screwing around with them because you fancy an interest rate change – in the wrong direction given the current economic climate! Have you been living under a rock??!!
    LendInvest is a good platform that I’m going to explore. I’m also hoping Lending Club make the jump across the pond to allow us to invest in the US markets (given the weakening pound).

  24. The removal of the auction format has unfortunately removed the possibility of the market pricing the risk.
    It seems to me that with the current uncertainty rates should be increasing at all levels in the UK.
    I appreciate that base rates have dropped and that FC has better default data but I’m still not sure that outweighs what is likely to be at least two years of uncertainty and stunted growth.

  25. What would be interesting would be if Funding Circle looked to offer some of these investments into smaller companies under a VCT wrapper. I suspect it’s too complex but the tax advantages, even if the default rates were higher, could make these investments look a lot more attractive.
    Have you considered that FC?

  26. After a barrage of largely justified criticism the announcement has been substantially re-written and now provides a clearer view of the changes. The questions raised should have been predicted by FC.

    Lenders will generally dislike the changes and borrowers like them!

    Please can we have more information on the calculation that returns will remain unchanged at about 7%. I (and others on the blog ) seem to feel that if you applied the new rates the an existing balanced portfolio (without changing other criteria) then returns will go down. The only way to maintain performance is to increase riskier loans as a relative share.

    • Hi Richard, thank you for your comment. As investors lend to their own individual portfolio of loans, returns will vary from investor to investor depending on risk appetite and the proportion of risk bands in each portfolio. The estimated return on the website has always assumed a spread of loan parts across risk bands, but investors have the option to only lend to A+ and A businesses, for example. When we applied the new rates to the proportion of risk bands we expect to list moving forward, the estimated return across the book (after fees and bad debt, but before tax) is 7.0%. You can see the full calculation for the estimated return for the last 100 loans accepted on the marketplace here: https://www.fundingcircle.com/investors/current-estimated-return

      • You can’t grow crops if there’s a drought. And you can’t bid on the higher risk bands if there are no higher risk bands to bid on!!

  27. I could stomach the adjustment in rates, if in return FC became far more diligent in reading what borrowers were sending to us in the form of their funding request. It is comical how some borrowers can be set in their funding need by writing one line (not even a sentence, just a couple of words sometimes). Also if FC could perhaps explaining to us lenders how some businesses can be granted A+ ratings when on the face of it from the financial information provided, they would be at best a C, and probably laughed out of any mainstream financial institution by asking for the monies requested with the financial positions they hold. I have this itching fear that at some point down the road there is going to be a monumental blow up in this peer lending sector, and part of the issue will be the lax controls and oversight by the likes of FC in determining the credit quality of the borrowers. And it will be use lenders who will suffer, not FC, who merely clip the ticket. I reckon some borrowers are already probably laughing at us lenders who are happy to lend (auto-bidders in the main i would imagine) when their businesses are probably insolvent and this is an “almost” free source of funding for one last swing at trying to keep the business afloat.

    • Hi Xmyass, thank you for your comment. We appreciate that some borrowers will provide more information to investors than others, however each business passes through a robust credit assessment before being listed on the marketplace, and bad debt has been consistently within expectations over the past few years. You can see the current estimated and actual return to date by year of origination in the table in the post above, and you can find out more about how we assess businesses in this blog: https://www.fundingcircle.com/blog/2016/07/digging-data-evolution-assessment-process/

      • Thank you for your reply. I struggle though to believe your statement about robust credit assessment etc, when you have borrowers who state the reason for funding being “to clear existing loans”, but in the financial statements section do not list any loans. This is basic information and either the reason for the loan is false, or financial position presented to us is mis-stated/mis-represented. Something the FCA would not be happy with. Please will you sharpen up on your attention to what you/your borrowers are presenting to lenders/investors with urgency.

  28. FC – taking 1% out of the nominal 4.9% for A+ 6 months puts your charges higher than a typical hedge fund (20%). Don’t you feel ashamed ?

  29. Risk bands a*, a and b are the most common on the platform. C are not as common and D and E are very very seldom seen on the platform. With C,D and E rates INCREASING, that will surely reduce the amount of these businesses to bid on, which means the vast majority of new loans are going to be at lower rates. May I remind FC that without investors, you grind to a holt. 4.99% is your cheapest loan. HSBC offer a Regular Saver at 6%, which is 2% more when you factor in the fee, AND it has full FSCS protection!!!

  30. So a lot of your posts talk about a fully diversified portfolio to maintain the 7% return rate. How are we supposed to do that? I have never seen C D or E loan requests (as I understand it, they are hoovered up in minutes) so how can I diversify my portfolio? And don’t say buy loan parts because the premium rate charged on C D or E loans are huge, negating any risk reward benefit when bad debt is taken into consideration. So the reality for most investors is that the return will go down…with no tangible reduction in risk.

    • Here here. My point exactly. I have emailed them this very point and they tried saying, “we understand if you only want to bid on lower risk loans.” I went you are missing my point, you rarely see C risk loans and hardly ever see D and E.” FC have increased C, D and E which will reduce these loans even more so, but they will more than compensate for that with the A*, A and B loans that will increase substantially due to the lower rates, which will increase turnover and profit for FC, at the expense of the Investor. I urge all investors to boycott lending at these new lower rates and we’ll see a re-think in favour of the all important investor. Trust me. It’s people power and we can dictate when we unite in the masses!!!

  31. This change will have a big impact as I have 8.7% return after fees etc. How much longer before we can ISA loans as this will help off-set the rate changes ?

    • Hi Tim, we will be able to apply to be an ISA manager and launch the Funding Circle ISA once we have been fully authorised by the FCA. We are continuing to work closely with the FCA, and will let all investors once we know more. Thanks

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