How our collections process works

At Funding Circle our aim is for you to earn stable returns by lending directly to businesses. As with any type of lending, some businesses may run into difficulties after taking their loan and be unable to repay it in full. We call this bad debt. We expect a certain percentage of bad debt to occur each year and account for it in your projected return.

When a business falls behind with their repayments, our Servicing, Collections and Recoveries team will work closely with them to achieve the best possible outcome for investors. To help you understand the steps in more detail, we’ve set out below a guide to how our collections process works.

A repayment becomes late

When a business falls behind in payments we try to contact them straight away. Many are responsive and cooperative (more on this below). However, if we cannot reach them, we have a phased approach to resolve the issue:

Try to retake the direct debit

We typically find out if a direct debit has failed 3 days before the payment date. At this point we automatically send an email to the borrower, and we try to retake the direct debit. We will also phone the borrower to understand why the direct debit failed and to ensure that the relevant account has the required funds.

Send a demand letter

If the second direct debit fails, we phone and email at least twice before issuing a formal demand letter for the payment. After issuing the letter we will continue to phone and email the borrower (and any guarantors).

Charge a late fee

After seven days we will apply an administration fee to their arrears and send another demand letter to both the borrower and the loan guarantors. The letters include documents explaining some of the possible consequences of insolvency.

The purpose of the administration fee is to encourage borrowers to get the loan back up to date, and not to prioritise other creditors over their debt to Funding Circle investors. The fee, if received, goes towards any third party costs that arise from dealing with their case (i.e. tracing agents, court fees, external lawyers, etc).

We continue to contact the borrower and guarantor by phone and email. We also use online tracking technology and other data sources to try to trace the borrower, and may arrange a site visit by a field agent.

Default the loan

Depending on the circumstances, if we have had no contact from the borrower or the guarantors we may then decide to default the loan. We will typically default a loan when it has been late for three months, although we may default at any time if we believe it is in the best interests of investors. When the loan is defaulted we demand full payment of the full outstanding amount from the borrower and the guarantors.  

This also has the effect of crystallising the debt of the guarantors, and enables us to commence formal legal or insolvency action.

Most of our recoveries come through the loan guarantors, usually in one of four ways:

1. Payment plans

We will always seek to agree a fair and affordable payment plan with borrowers and guarantors. We want guarantors to get back on their feet and repay the loan in full over time, and usually we will not agree to an early settlement figure for less than 100% of the principal and owed interest. We always ask for contractual interest to be paid too. If the payments are below a certain threshold, we will require security on the guarantor’s property.

We review payment plans (and the guarantors’ financial position) periodically throughout each year, to ensure that the level of payment plan is fair to both the borrower and to investors. Although repayments may be small to start with, given time payment plans do increase and form a significant part of the recoveries for investors.

2. Individual voluntary arrangements

We do not accept informal settlements, but we will review (and often accept) a guarantor’s proposals for an Individual Voluntary Arrangement (IVA). This may involve some write-down of the debt. Having an IVA in place (rather than an informal arrangement) ensures that an insolvency practitioner, who is an officer of the court, stands behind the agreement and is responsible for making sure the proposal is fair and accurate. An IVA is designed to give people another chance, and we respect the legal purpose behind this procedure.

3. Bankruptcy

Sometimes bankruptcy is the right option for an individual. When a guarantor is made bankrupt, we will always try to get an insolvency practitioner from our panel appointed as Trustee in Bankruptcy (i.e. the person who takes controls of the bankrupt’s assets and carries out various investigations). However, sometimes this is not possible. When an individual enters bankruptcy it is very rare that there will be a material recovery for investors.

4. Court Action

Sometimes court action will result in us appointing High Court Enforcement Officers (i.e. bailiffs) to agree a payment plan with a guarantor, or we seek to obtain a charge on their property and then an Order for Sale. This is very much the last resort for us.

We will normally stop any legal action if the guarantor starts communicating with us again. That said, if we have any reason to believe that a guarantor is deliberately trying to deceive us (rather than simply being afraid to face up to his or her responsibilities), we will always take legal action or commence bankruptcy proceedings rather than try to negotiate or approve an IVA.

Support for credible borrowers

As mentioned above, many borrowers who experience difficulties do communicate with us and want to repay their loan once they get back on track. Where possible we try to find a solution that will allow them to keep going. If they can turn their business around, sell assets or start a new business, not only does it help them, but we can recover far more for investors over the long term.

The borrower is always encouraged to pay all arrears as quickly as possible. However, if they are credible, then by not pushing for an immediate (and unlikely) payment in full we can create trust and loyalty. By supporting  businesses through difficult periods, we aim for full repayment of the principal with all accrued interest for investors.

We have developed this strategy over many years and it has produced strong results. We will continue to refine and improve our process, and work tirelessly to chase every late payment and defaulted loan to get the best outcome for investors.

If you’d like to learn more about bad debt, defaults and how they can impact your return, more information can found in the following articles:

Bad debt, defaults and why not to be afraid of them

Meet the Collections and Recoveries team, who help keep your returns healthy

How returns change over time

Enjoy lending,

The Funding Circle team

Saving for a house – by Jasmine Birtles

Jasmine Birtles is a TV and newspaper journalist and personal finance expert. In her new column she’ll be helping you get the most from your investment and reach your personal goals.  

Whether you’re after a home of your own, or you want to help the kids get on the housing ladder, saving for a house can be a daunting prospect. Fortunately there are various things you can do to get the keys to that first home quicker than you thought.

Add to your savings

To get a mortgage you’ll need a deposit and that’s where people struggle. Stay focused and make some sacrifices and you can get there:

  • If your parents are able to have you, you could move in with them temporarily and put aside money you would have spent on rent and bills.
  • Cut your costs including going out, getting takeaways, spending on clothes and the like.
  • Switch all the bills you pay to get the cheapest monthly rate.
  • Check your old direct debits and cut subscriptions including magazines, gyms and unused apps.

Use every scheme going

There are a few Government schemes around specifically aimed at first-time buyers, so make the most of them.

Help to Buy

Help to Buy Shared Ownership works like the schemes run by Housing Associations. You get the chance to buy a share of your home (between 25% and 75% of the value) and then you pay rent on the remaining share. Later on, you could buy bigger shares or the whole lot once you can afford to.

The Help to Buy Equity Loan is a government scheme that helps buyers get a new build property in England. It’s set to run until 2020 and is available to homeowners looking to move as well as first time buyers, but only for new-build homes that are worth under £600,000. It gives an equity loan of up to 20% of the price of the house you want to buy and it means that you personally only need to put down a 5% deposit to get a good mortgage.

The Help to Buy ISA is a savings scheme where the government will top up your savings by 25% (up to £3,000). Your first payment to your ISA can be up to £1,200 and then you can pay up to £200 each month. When you buy your property, your lawyer will apply for the extra 25%. Happily you don’t have to pay it back.

Find out more about all three here.

Starter Home Scheme

In this scheme, 200,000 new build homes will be made available (soon!) to first-time buyers under 40 years old. At least 20% will be taken off the market price, costing no more than £250,000 outside London and £450,000 in London. There’s more here.

Get your parents to help

You’ll probably have had this conversation already, but if your parents or grandparents can help with the deposit it can be invaluable.

However, if they want to help but don’t have the money, they could still be a guarantor for you. There are several ‘guarantor mortgages’ on the market that allow parents, grandparents, or friends to help you buy a property without actually having to hand over any cash at the start. Ask a mortgage broker which lenders offer these.

Try Shared Ownership

…with a housing association

Shared Ownership is usually run by a housing association or council. You own part of a property and pay a small rent on the other part which is owned by the housing association or council.

Competition is high for a place on a housing association list so get in as soon as you can. You can only be on it if your household income is less than £80,000 per year outside of London or less than £90,000 per year inside London. You can find out more here.

…with a friend

Consider doing your own, private ‘shared ownership’ scheme where you buy with a friend or partner. It’s a bit risky but so long as you know that you can get on with the other person, and you have watertight contracts in place, then it can work.

Make extra cash

Aim to make at least an extra £100 a month with a side-earner. You could be  a film extra, do focus groups or babysitting, make cakes to sell, mend computers and more, depending on your skills and time. See the Make Money section on my website, for more ideas.

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice.

The information and views contained here are provided solely for informational purposes and should not be construed as legal, tax, regulatory, accounting or investment advice, or as a recommendation or an offer or invitation by Funding Circle.

To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here.

If you have any questions, please speak to your professional adviser or seek independent specialist advice.

Your spring review 2018

By lending through Funding Circle you make a huge difference to businesses throughout the UK. With your help they’re able to grow, create jobs, develop new products and support local communities. Thank you for your continued support – you’re helping drive the UK economy forward! Read on to find out more in your spring review. 

Spring review – lending figures

Between April-June 2018 you and other investors helped thousands more businesses get the finance they need to thrive.

Spring review

*In April-June 2018, new loans made through Funding Circle helped unlock 4,140 jobs across the UK.

April-Jun 2018 sector breakdown

The industries you have been lending to:

Spring review

April-June 2018 regional breakdown

Your lending has been helping every region throughout the UK: 

Spring review

More on your impact

For more detail on how your lending is helping businesses throughout the UK, check out our blog on how you’re helping the economy grow.

Or if you prefer to look at the wider picture, read our Spring Industry News for updates and articles on investing, important finance news and more. Or sign in to your account to add funds

By lending to businesses your capital is at risk.

Enjoy lending!

The Funding Circle team