New lending experience – your questions answered
Last week we announced some improvements to how lending and selling through Funding Circle will work, with the aim of making lending simpler, better and fairer for all investors.
Since then, we’ve been listening to your feedback and have put together answers to the most frequent questions you’ve been asking.
Your account from 18th September
If I don’t choose a lending option, can I still use my Funding Circle account from 18th September?
If you are an Autobid user, you will automatically continue to lend to businesses from 18th September and you do not need to select a lending option.
If you do not use Autobid you will need to select a lending option in order to continue lending to businesses from 18th September. If you do not select a lending option you can continue to login to your account, view your existing portfolio and withdraw your available funds, however you will no longer lend to any more businesses.
From 18th September, you will need to accept the new Terms and Conditions in order to continue using your Funding Circle account.
Will I be able to pause lending, or will it always be turned on?
You will be able to pause your lending at anytime. Your repayments will not be lent to more businesses until you turn lending back on.
What happens to my existing loan parts?
The changes we are making will only affect lending to businesses from 18th September, and will not affect any existing loan parts you own. You will continue to receive repayments from existing loan parts from 18th September, even if you do not choose a lending option.
How can I change my lending option?
- Before 18th September: If you are not being transferred to a lending option (for example if you don’t currently use Autobid) you will be able to select an option the next time you log into your Funding Circle account. You can change your lending option by navigating to the Autobid page and following the link.
- On and after 18th September: you will be able to change your lending option at anytime. Your choice of lending option will only affect any new lending, and will not change existing loan parts you own.
Selling loan parts
How will the secondary market work?
- Before 18th September: On 21st August we launched a sell page that simplifies how investors buy and sell loan parts. You can sell your loan parts by going to the sell page and telling us how much you’d like to withdraw. We’ll list a selection of your loan parts for you approximate to that value. Once they’ve sold, the loan parts will appear as available funds which you can transfer to a nominated bank account. We have also removed the 0.25% fee to sell your loan parts. You will be able to sell individual loan parts and set a premium or discount up until 18th September.
- On and after 18th September: Any remaining loan parts listed for sale at a premium or discount will be delisted and the option to sell loan parts individually will be withdrawn. All loan parts listed from 18th September will be sold at par value. All investors will buy existing loan parts sold by other investors, based on their lending preference.
Can I still buy or sell individual loan parts?
From 18th September you will no longer be able to buy individual loan parts from other investors, or sell individual loan parts to other investors.
Will I be able to sell loan parts that are larger than £100?
Yes. The new tool will only split your lending to a single business into smaller parts of £100 when lending to new businesses. You may still sell loan parts larger than £100 to other investors, providing they are no larger than 0.5% of the buyer’s portfolio.
Your new lending options
Will I be well-diversified by lending 0.5% of my portfolio to each business?
Since 2010, every investor who has lent no more than 1% of their portfolio to a single business for at least a year has made a positive return, with 92% earning at least 5% a year after fees and bad debt. This increases to 93% when an investor lends no more than 0.5% of their portfolio each time.
There are no guarantees with any form of investment, but lending 0.5% to each business will provide you with a very well-diversified portfolio. You can see this from the graph below, which shows the annualised return earned by 95% of investors lending for at least one year, by the number of businesses lent to.
Data is correct as of 1st July, and past performance is not a guarantee of future returns. Remember, by lending to businesses your capital is at risk.
Will I be able to choose the loan term of the business I lend to?
Our aim is for you to build a well-diversified portfolio and have the best chance of earning a stable return by lending to a wide range of businesses. Over the past seven years we have built up a large database of historical loan performance and have found there to be no significant difference in how businesses perform by loan term. In addition, if you do want to access your money early you can sell your loan parts to other investors and there is no cost to do so.
Will I now be investing in a fund?
No. By lending through Funding Circle you always lend directly to your own individual portfolio of businesses and no investor account is the same. This will not change as you will continue to enter into loan contracts directly with each borrower you lend to, so you are only exposed to the performance of those borrowers. This is very different to a fund where your money would be pooled together with all other investors and the return investors receive depends on the overall performance of the fund.
Funding Circle ISA
When are you launching a Funding Circle ISA?
We will be launching the Funding Circle ISA this tax year. Given we expect the Funding Circle ISA to be popular, we plan to launch it at a time to suit demand from both investors and borrowers. This will allow us to manage liquidity on the platform and help investors to earn attractive, stable returns.
Can I transfer my existing loan parts into the Funding Circle ISA?
No. For regulatory reasons, you will not be able to transfer any existing loan parts you own into a Funding Circle ISA. You will need to withdraw funds to your nominated bank account, before transferring them into your Funding Circle ISA.
If you can’t see your question here, you can find more information about your new lending experience in our FAQ.
The Funding Circle team