At Funding Circle, our aim is to allow you to earn attractive, stable returns by lending directly to a diversified portfolio of creditworthy businesses. As part of this commitment, we regularly review and update our assessment process and the interest rates at which you lend to businesses.
Following our most recent review, we have updated the projected returns we display for each lending option and will now show these returns as a range.
Introducing ranges for projected returns
The projected return is the annual return that a diversified investor could earn, after fees and bad debt but before tax, by lending to businesses through each lending option. To reflect there is an expected level of uncertainty when making predictions about loan performance we are introducing ranges for the projected returns.
What are the new projected returns?
Following our most recent review of our gross interest rates and taking into account the above, the projected returns for our Balanced and Conservative lending options are now:
- Balanced – 6 – 7%
- Conservative – 5 – 5.5%
You can see more information on how the projected return is calculated here.
What other factors can affect your return?
It’s important to understand that your actual return may be higher or lower than the projected return shown for your chosen lending option. This can be caused by factors such as:
- Actual performance may be higher or lower than projected – for example, more businesses may be unable to repay their loans if macroeconomic conditions were to change, such as during an economic downturn. In addition, the individual businesses you lend to may perform better or worse than projected.
- The number of businesses you lend to – it’s important to understand that you are lending to your own individual portfolio of loans and not everyone will earn the same projected return. As your personal projected return depends on the loans your funds are matched with, the more businesses you lend to the better our lending tool will be at matching your funds to achieve the projected returns shown. Lending to more businesses also helps you earn a more stable return by reducing the impact of bad debt.
- Your actual return is likely to change over time – the projected return is the annual return you could earn once all loans have repaid and recoveries have been received from defaulted loans. It’s important to remember that bad debts do not typically occur evenly over the life of a group of loans, and it often takes time for recoveries to be made on defaulted loans. This means your return is likely to change over time. You can read more about this here.
Remember, by lending to businesses your capital is at risk.
Will this affect the businesses you lend to?
These projected returns only affect new loans made through the platform, and will not affect any loan parts you currently hold. We will review and if necessary, update the projected returns every three months. We display projected returns for the past five years of loans on our statistics page, and update these every three months.
You do not need to do anything and, by having lending switched on, you will continue to lend to businesses automatically. As always, you can change your lending option or pause lending via the lending settings page of your account.
If you have any questions about today’s news, please get in touch.
The Funding Circle team