Projected returns quarterly update – January 2020

At Funding Circle, our aim is to allow you to earn attractive, stable returns by lending to a diversified portfolio of creditworthy businesses. As part of this commitment, we regularly review our projected returns based on our assessment process, the interest rates at which you lend to businesses and the performance of loans.

Taking into account these factors and the mix of businesses in each lending option, following our most recent review we are making no change to the projected returns for either lending option.

What are the projected returns?

The projected returns are a forward looking estimate for loans added to your portfolio, and do not affect loans you already hold. Following last week’s loan performance update—which you can read more on here—the projected returns for our Balanced and Conservative lending options are not changing. They will continue to be:

Balanced: 4.5% to 6.5%

Conservative: 4.3% to 4.7%

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 – as you are lending to your own individual portfolio of loans, not everyone will earn the same projected return. The return you achieve depends on the loans your funds are matched with, and 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 been repaid and recoveries have been received from defaulted loans. 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.

Will this affect the businesses you lend to?

These are the projected returns for your lending going forward, and do not affect any loans you already 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.

Remember, by lending to businesses your capital is at risk and funds are not covered by the Financial Services Compensation Scheme.

The Funding Circle team


Chief Risk Officer’s UK update – January 2020

Jerome Le Luel joined Funding Circle as Global Chief Risk Officer four years ago; bringing with him more than 20 years of experience in risk management. His previous roles include Global Head of Risk Analytics at Barclays Bank and Global Chief Risk Officer at Barclaycard, where he successfully navigated their global portfolio through the 2008/9 recession.

Jerome leads a team of more than 100 risk professionals across the four markets Funding Circle operates in: including data scientists, credit risk analysts and credit assessment experts.

In the latest in our series, Jerome will provide his view on the current macroeconomic climate in the UK and what this means for the businesses you lend to

Some of the conditions driving uncertainty have eased

In my previous update we discussed how in the UK, increasing economic uncertainty was being driven by an unstable political environment. The key fundamentals remained stable in 2019; the economy has grown slowly but steadily and unemployment remains at historic lows. However, the uncertainty contributed to a decline in business confidence, with business investment and borrowing slowing down last year.

UK Small Business Confidence Index

Source: Federation of Small Businesses

We are politically neutral at Funding Circle, however last month’s election result provided some welcome clarity for the business community. This stability will help engender business confidence and as a result, I expect some of the investment that has been held back in recent years to be deployed into the UK economy. This would be good news for small businesses and those who lend to them, although it’s prudent to be cautious—there is still a lot unknown about how the Brexit process will eventually materialise. As always, we will continue to monitor the economic environment carefully and make adjustments when required.

Our performance outlook remains stable

Every three months, we update the projected returns for each group of loans originated since 2012. These are the annualised returns, after fees and bad debt, that loans are trending towards once all loans have been repaid and recoveries received. For each group of loans, we combine the actual annualised return received to date from the portion of loans that have repaid, and our latest estimates for the remaining term of the portion of loans that have not yet been repaid. 

Projected returns have remained stable since our last update in October:

Projected returns after fees and bad debt, UK*Source: Funding Circle

Our tightening actions have seen positive results

Previously I have discussed that while the overall performance of UK small business has remained stable in recent years, there has been a small segment of the market that has underperformed. From the chart below, you can see that a rise in the number of individuals that have been made insolvent—driven by a significant expansion in consumer borrowing since 2013—has had a knock-on effect on the insolvency rates of some small businesses; for example those who may be more reliant on lines of personal credit when managing their business cashflow:

UK small business and consumer insolvencies (Indexed, Q1 2008 = 100)Source: Gov.UK

While the large majority of businesses you lend to have performed as expected, the projected returns of loans between 2016 – 18 reflect that a small population of businesses were impacted by this worsening consumer credit environment. In response, we made a series of adjustments to our credit policies and risk models to significantly reduce investors’ exposure to this segment of businesses. You can see one example of this in the chart below: 

Average director consumer score (Indexed, Jan 2017 = 100)

Source: Funding Circle

The chart shows how the director consumer scores of businesses we accept on the platform has changed over time. The consumer score is the credit score given by a credit bureau based on the information they hold on a director. While this is just one of the many metrics we use to assess the businesses you lend to, you can see how investors are now significantly less exposed to businesses whose directors have a low consumer score – i.e. are more susceptible to the consumer credit environment.

I’m glad to say this prudent approach has yielded positive initial results. While loans taken out in 2019 are still in the early stages of their term, initial signs are showing improvement over the 2016-18 cohorts. As an example the chart below shows the percentage of loans, three months after being taken out, that were 10 or more days late.

Percentage of loans (by loan amount) 10+ days late, 90 days from origination 

Source: Funding Circle

It’s important to be clear that this is just one metric, and is not a guarantee of how these loans will perform over time. We are currently projecting loans taken out in 2019 to deliver annualised returns of 5 – 7% after fees and bad debts. 

Putting your portfolio through its paces

The increasing stability of the political and economic landscape means I am cautiously optimistic for the UK economy over the next twelve months. However, we are always preparing for a different outcome; after all, lending is cyclical. As Chief Risk Officer, part of my role is to help ensure your portfolio contains businesses with the resilience to continue providing positive returns even if economic conditions worsen.

To achieve this we regularly carry out stress testing. This involves taking an adverse scenario modelled by the Prudential Regulation Authority (and used by all major UK banks in their own testing) and applying it to the projected returns of loans being taken out today. Doing this allows us to simulate what could happen to these returns in a potential downturn situation. While it’s important to stress the nature of modelling means these projected returns are estimates, and are the returns we expect to deliver once all loans have been repaid and recoveries received, in this scenario we would expect them to remain positive:

2019 Funding Circle stress testSource: Funding Circle stress test 2019

Providing you with the foundations to help the economy grow

There has rarely been a more important time to be lending to the UK’s small businesses. In the past decade the number of SMEs has grown by more than 1 million.** Despite this, outstanding lending from UK banks to SMEs is 15% lower than it was in 2011:

Outstanding bank lending to UK small businesses (£m)

Source: Bank of England

This highlights the difference your lending is making; helping businesses create jobs and invest in their local communities. Continuing to carefully monitor the wider environment, making timely and prudent adjustments where necessary, will allow you to help the economy grow while earning stable and attractive returns.

We hope you have found this information useful. If you have any questions, please don’t hesitate to get in touch, and remember by lending to businesses your capital is at risk. Not covered by the Financial Services Compensation Scheme.

Jerome Le Luel

*Projected returns as of 31st December 2019. The projected annualised return shows the return, after fees and bad debt, that loans are currently estimated to achieve. Loans are shown by the year they were taken out. The return is calculated by combining the actual annualised return received to date, and our latest return estimates, including expected recoveries, for the remaining term of loans that have not yet been fully repaid. Past performance is not a guarantee of future returns and by lending to businesses your capital is at risk.

**Source: UK SME numbers in 2010 and 2019


This material contains certain tables and other statistical analyses that have been prepared by Funding Circle. Numerous assumptions have been used in preparing this statistical information, which may or may not be reflected in the material. The statistical information should not be construed as legal, tax, investment, financial, or accounting advice. The Information is provided as of the dates shown and is subject to updating and revision, and may change materially without notice. Subject to applicable regulations, no person is under any obligation to update or revise the information. The information may contain various forward-looking statements, which are statements that are not historical facts and that reflect Funding Circle’s beliefs and expectations with respect to future events and financial and operational performance. These forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond the control of Funding Circle and which may cause actual results or performance to differ materially from those expressed or implied from such forward-looking statements. Nothing contained within the information is or should be relied upon as a warranty, promise, or representation, express or implied, as to the future performance of any loans. Any historical information contained in this statistical information is not indicative of future performance.

2020 vision for Funding Circle Partners

2019 was a record breaking year for the Funding Circle partnerships team. To date, this team and all their registered partners have helped facilitate over £150 million across more than 1400 businesses, impacting the lives of countless business owners within numerous sectors. We believe our referral partners will be integral in allowing Funding Circle to deliver a faster and better service to more small businesses this year.

Team changes

Fran Warrington has recently taken over as Head of Referral Partnerships for the UK. Fran has been with Funding Circle for just over a year, working with many of our key partners during this time and building partnerships in the London and South East region. Prior to Funding Circle, Fran worked in other commercial roles including Google, Gartner and Start Up Loans. 

Fran and the team are excited to grow to a team of 12, and in doing so, being able to support even more partners throughout 2020. Things to look out for will be:

New hires 

As they continue to grow this year, Fran and the team will be joined in by 3 new team members in the London and Northern regions. Ronan Gallagher joins as Partnerships Manager, Angus Pollard and Emi Siemieniako both join as Partnerships Executives. All 3 have extensive experience working with both partners and borrowers in the lending space. 

More events

The partnerships team and wider business value our registered partners and will continue to look for new opportunities to enhance our partner experience. Over 2020 the team will be in attendance at many events, partner conferences and will also be taking part in a Funding Circle Charity Gala.

TaxAssist partnership 

Key strategic partners in 2020 will be essential to our continued success and the team was excited to announce the onboarding of the TaxAssist Group at the end of 2019. 

“Funding Circle exists to support the growth of small businesses. Through our partnership with TaxAssist Group, we look forward to helping their small business clients access the finance they need to go even further. We offer a modern approach to finance; a simple online application powered by innovative technology and data analytics, accessible no matter where a business is based.” 

Lisa Jacobs, Funding Circle UK MD 

2019 was an amazing year for the Partnerships team, they helped facilitate over £65 million to over 600 businesses. They also onboarded numerous partners across the country, who are now able to offer their clients different options and a more enhanced service. As we move into 2020, Funding Circle recognise how integral for all our registered partners and their clients will be in enabling us to achieve our goals. We understand the importance you will play as we continue to build a better financial world and help more businesses go further. 




The impact of our Introducer Marketing Service

Funding Circle is a leading global small business loans platform, connecting small businesses who want to borrow with investors who want to lend in the UK, US, Germany and the Netherlands. At Funding Circle, our mission is to build a better financial world and give small business owners and investors a better deal.

As the Funding Circle Introducer team, it’s our mission to help your clients get the finance they deserve to build their business. To date, our Introducer network has helped us lend £1.4 billion to British small businesses.

We aim to do everything we can to offer an innovative service to our Introducers and their clients, including offering an effective direct marketing programme that Introducers can take advantage of, free-of-charge. Our unique email and direct mail campaigns deliver carefully constructed marketing messages to over 2,500 of our Introducer’s clients every four weeks. 

The messages and creatives differ from month to month, and are crafted by our experienced and specialist marketing team. These communications encourage clients to engage with their Introducer directly, enhancing their existing relationship whilst enabling them access to fast, affordable finance.

At Funding Circle, we have an internal policy in place to ensure that if your client does come to us directly as a result of a marketing campaign, they are referred back to you as the original Introducer. We honor these relationships and see the value of the Introducer relationship for the client.

To date, this has provided our Introducers with over £10 million of incremental lending, at no extra cost to them.

We truly value the support of our Introducers and will continue to provide you with enhanced unique offerings throughout the year.

Is your business your baby?

On January 1st 2020 two things happened; we launched into a new decade and our singing baby landed on your TV screens. 

Our new ad follows on from the success of Captain Galactic and friends, who we watched soar through the skies and into the stratosphere. Our arcade-themed characters represented all the small businesses out there who are passionate and determined, doing extraordinary things every day and going further with the help of our business loans.

Now our singing baby tells the same message through a different story. 

Set in an ordinary UK city, dawn is breaking and we see a small baby waking up for the new day. Wriggling in its bed to the sounds of the Alice Cooper track, I am the future, our baby does something no-one expects a small baby should be able to – breaks out into a show-stopping version of the song. 

We know that for many business owners, their business is their baby and just like our baby they have the potential to go further.

We believe small businesses in the UK really are the future. We see them creating jobs, helping communities and driving our economy forward.

If you would like to share the amazing things your business—or your baby—is doing, please share and tag us on #thefutureissmall. You are the future! 

Watch our baby here.