At Funding Circle, our aim is for you to earn attractive, stable returns by lending directly to creditworthy businesses. To help you achieve this, we wanted to let you know about an update we are making to how we set interest rates for businesses. We’re also introducing a small change to how the projected returns displayed for our Balanced and Conservative lending options are calculated.
Providing borrowers with a more tailored experience
The interest rate paid by businesses currently depends on two factors; the length of their loan and the risk band assigned to them following our robust assessment process. This means businesses are only offered one of six different interest rates depending on their assigned risk band. In order to provide businesses with a more personalised experience, next year we will begin to increase the range of interest rates we set for borrowers within each risk band.
This change will have no impact on the projected returns you can earn through our Balanced and Conservative lending options, or the estimated bad debt rates for each risk band. We will let you know if these projected returns change via the Lending Settings page of your account.
Refining how we display projected returns
Currently, the projected return shown for either the Balanced or Conservative lending options is the median estimated return, after fees and bad debts but before tax, across all investors using that option. As you lend to your own individual portfolio of loans your own personal estimated return (found on your Summary page) may be higher or lower.
The median shows the lowest projected return that 50% of investors can expect to earn by lending through that option. We want more investors to experience a higher personal estimated return than the overall projected return, so we are refining the calculation. It will now show the lowest projected return that 65% of investors can expect to earn by lending through that option.
The two illustrative charts above demonstrate this, by showing the distribution of projected returns for an example group of investors using the Balanced lending option. The green shaded area shows the percentage of investors in the group whose personal estimated return is equal to or higher than the displayed projected return.
Following this update, and taking into account the current mix of risk bands we expect to be funded on the platform, the projected annual returns after fees and bad debt, but before tax for both lending options will be displayed as:
- Balanced – 7.2%
- Conservative – 4.8%
It’s important to note that this change has no effect on your personal estimated return, the businesses you lend to or the estimated bad debt rates we expect investors to experience. You can see the full calculation here.
Remember, by lending to businesses your capital is at risk and your actual return may be higher or lower. If you would like to discuss these changes further please get in touch.
The Funding Circle team