Accessing your funds through Funding Circle

When we first launched, Funding Circle opened up small business lending to investors for the first time. Loans taken out since 2012 are on track to deliver an annualised return of 4-7% per year and we are proud that 83,000 investors have earned more than £300 million in interest (after fees and bad debt), more than any other lending platform. We are also pleased that Funding Circle is the best-capitalised lending platform in the UK, following last year’s Initial Public Offering.

When you lend through Funding Circle, your money is matched to loans which are paid back over a period of up to five years. As a result, it is important to treat lending as an investment, as your money may be tied up for this time period.

Even so, investors are able to access funds in two ways:

1. Switch lending off. Businesses pay back interest and principal each month, so by simply switching lending off, you will receive approximately 3 – 5% of your outstanding portfolio after the first month and approximately 30 – 40% of your money back after the first 12 months.

2. List loan parts for sale. Our selling tool matches investors looking to sell loan parts with investors looking to buy. However, this is subject to demand from other investors and selling is not guaranteed.

We are constantly looking at ways to improve your lending experience and following a recent review, we will be launching a new selling tool on 2nd December that will improve your ability to access funds more regularly. 

Currently, loan parts are sold on a first-come, first-served basis and investors wait until they reach the top of the queue before selling any. The new tool will cycle through all investors wishing to sell loan parts as many times as possible within a 120 day period. This will mean investors start to receive money back more regularly from the loan parts that have sold.

We will also introduce a transfer payment for those wishing to sell loan parts to other investors. When a loan part is sold, a 1.25% transfer payment will be applied. For example where a seller sells a £20 loan part, they would receive £19.75 from the buyer (as with the current tool, you would also receive any interest owed on that loan part since the last monthly repayment). 

This will boost returns for investors that buy both new loan parts and loan parts listed for sale on the secondary market. We hope this will attract new customers and funds to the platform. It also brings us in line with other lending platforms although, in our case, Funding Circle does not receive any fees from any loan part sale. The transfer payment does not apply if you want to withdraw repayments as they come in.

Finally, the new tool will make it easier to change the amount you want to withdraw after you have started selling. You’ll also be able to see the amount received from loan part sales as well as the amount received from repayments, so you don’t withdraw more than you initially requested. 

How to access your funds

These graphs show how you could receive cumulative repayments and funds from sold loans. They are indicative and meant for illustration purposes only.

What happens next?

On 2nd December, all investors currently selling loans will be automatically transferred over to the new selling tool, and investors will start to sell loans with funds made available more regularly. Every investor will continue to sell for 120 days, and will receive a notification at the end of this period to confirm how much has been sold in that time. If you would like to sell more loan parts, you can make another request and start selling loans again. 

As part of this change we will also be updating our Terms and Conditions. You can read more about these here.

How can I provide feedback?

For more details—and if you would like to let us know your thoughts—please visit our feedback page

As part of our review, we have considered a number of options and strongly believe the package of measures we are launching are in the best interests of the majority of investors and will provide an improved overall service.

The Funding Circle team

Remember, by lending to businesses your capital is at risk. Past performance is not a guide to future performance. Funding Circle is not covered by the Financial Services Compensation Scheme.

£300 million interest earned is after fees and bad debt, but before tax. The repayment rates with lending paused are based on the average repayment rate for all loans outstanding on the 1st of September 2019. As you are lending to your own individual portfolio of loans, your actual repayment rate may differ.

Project returns quarterly update – October 2019

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. As a result of our review, 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 projected returns will affect 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 is not covered by the Financial Services Compensation Scheme.

The Funding Circle team

How to access your funds

When you lend through Funding Circle, your money is matched to loans which are paid back over a period of up to five years. As a result, it is important to treat lending as an investment, as your money may be tied up for this time period.

Your funds are lent out in small amounts to lots of different businesses. These are called loan parts, and each month you receive back a portion of the money you have lent plus interest. By keeping lending switched on, these repayments will be lent out again on more loans. This creates a rolling investment to help you earn better returns.

When you want to withdraw funds you have two options:

1. Switch off lending to withdraw small amounts

If you’d like to take out small amounts, you can withdraw your repayments as you go. Simply sign in to your account, go to the ‘Lending Settings’ page and turn off lending. Your repayments will no longer be lent out and the funds will accrue in your account ready for you to withdraw. 

The rate at which your funds will accrue will vary, but on average investors get back: 

Approx 3-5% of their portfolio after the first month 

Approx 15-20% of their portfolio over the first 6 months

Approx 30-40% of their portfolio over the first 12 months

The rate then slows, with repayments continuing over 5 years (or longer with recoveries).  

These figures are based on the average repayment rate for all loans outstanding on the 1st of September 2019. As you are lending to your own individual portfolio of loans, your actual repayment rate may differ.

To withdraw funds you need to first set up a nominated bank account.

2. Sell loans to withdraw a lump sum

If you would like to access your funds before your loan parts have been repaid, you can look  to sell them to other investors using our automatic tool. Selling loans is subject to supply and demand at the time and is not guaranteed. 

How does the selling tool work?

To use our selling tool, sign in to your account and go to the Access funds page. It will show the value of loan parts you have available to sell at that time (not all loan parts can be sold, more on this below). 

Enter the amount you want to sell. If you don’t want to sell the full amount available, the tool will select loan parts that best match up to the value of your request. 

Once confirmed, the tool will start selling your loan parts in small amounts. The funds are available for you to withdraw as soon as each loan part is sold.

How long does it take to sell loans?

The time to sell your loan parts may vary. It depends on the size of your request, the number of loan parts and supply and demand at the time. The tool will constantly cycle through each investor looking to sell, so that everyone regularly gets back small amounts. 

Any loan parts not sold after 120 days will be delisted and you’ll need to make a new request if you want to continue selling. We’ll notify you when this happens.

Is there a cost to selling loans?

When selling loan parts, a 1.25% transfer payment is deducted and passed to the buyer. For example, if you sell a £20 loan part, you’ll receive £19.75 (plus any interest owed since the last repayment). This happens at the point of sale and only to loans that are sold successfully.

100% of the transfer payment goes to the buyer. Funding Circle does not receive any fees from any loan part sale. The transfer payment does not apply if you want to withdraw repayments as they come in. 

How much of my portfolio can I sell?

To make it fair to all investors, you can only sell active loans with no credit issues, and not in the last month of their term. As a result, typically 85-95% of your portfolio is available to sell at any one time.

For loans that are late or have another credit issue, our Collections and Recoveries team are constantly monitoring and working with these businesses to recover the funds. You’ll continue to own these loan parts and receive repayments and interest as they come in. 

If their credit issue is resolved, they will become available to be sold again. 

What about defaulted loans?

If a loan is defaulted it will not be available to be sold again. The loan part is marked to zero in your portfolio, but our Collections and Recoveries team pursue each defaulted loan to recover as much as possible (read more about Collections and Recoveries here).

Recoveries can take years and may vary significantly depending on the loans in your portfolio. Successful recoveries will appear as available funds in your account as they come in ready for you to withdraw. 

Will I get the full amount requested?

The amount you receive from the sale process may be less than the amount you requested.  This could be for two reasons:

1. The balance of supply and demand on the secondary market. If there are not enough investors looking to buy loan parts, you may not sell all your funds within 120 days. You can make a new request if you want to continue selling. 

2. The number of your loan parts that are active with no credit issues. If this has changed since you made the request, the amount available to be sold may be lower. 

If you have any further questions or want to know more about accessing your funds, you can contact our Investor Support team at contactus@fundingcircle.com.

All information correct as of 2nd December 2019. 

Looking forward to 2020 and what it means for our introducers

Since its formation in 2012, our broker channel and introducer panel has continued to be integral in our success. This community has supported £1.3 billion of lending over 15,000 loans through Funding Circle, helping numerous businesses and unlocking thousands of jobs as a result. In turn, our registered introducers have grown their businesses too. 

We recently announced the promotion of Jeremy Crinall to the Head of Broker. Since joining in 2014, Jeremy has worked as a Business Development Manager (BDM) and as Regional Manager for Southern England. He has worked closely with all the team in their respective sub regions and is looking forward to using his 13 years of experience in the financial industry to assist the growth and development of the team, their panel of introducers, and building on those relationships even further. 

Jeremy has big plans for 2020 and sees three key areas to focus on for the next stage of success:

Service

Our team consider all our introducers as long term partners. We see them as relationships for life. We’re going to focus our efforts on improving the experience of all our introducers and their clients. We’re going to be focusing on optimising all touch points for our introducers and their clients and getting to know all our introducers on a greater level. This will enable our team to continue to go even further to provide them with the excellent service that they deserve.

Technology 

Technology will continue to be a pivotal focus for us and the team as we turn into the new year. We’ll continue to strive  to provide best-in-class solutions and to provide our introducers with even quicker decisions. We’re planning on making a lot of improvements across the business, which will ultimately benefit the broker channel and in turn, the service we’re able to provide.

People

As our plans for lending continue to grow in 2020, we want to look to build the team and further invest in our people. We strive to recruit the best individuals from a diverse range of backgrounds and experiences to ensure we can provide our introducers with an excellent service. We’ll also be looking to develop our existing team members. Both Business Development Executives and Business Development Managers receive continuous training and specialised courses, ensuring we have the right people in the right places. . 

2020 is going to be another amazing year for the entire introducer community and we want to remain at the heart of that at Funding Circle. We’re looking forward to the future and working with our introducers as we move towards 2020. We recognise the importance you will play as we continue to build a better financial world.

Loan Purposes we can help with

At Funding Circle we want to help fund all of your clients’ business needs. Every business has unique requirements and will be at different stages in their journey, so our loans can be used for a huge variety of needs.  Some of the most popular include:

Working capital – Working capital is the lifeblood of any business. Healthy cash flow allows business owners to pursue new opportunities and win more business. It saves them time, gives them greater peace of mind, and the breathing space to make the best long term decisions for them.

Refurbishment of premises – From office space to shop fronts, refurbishing business premises can be transformative. We can provide finance for refurbishment and spread the repayments over 5 years.

Hiring staff – The entire process of taking on extra staff can be costly and time consuming. Taking finance can allow  your clients to either outsource this process or conduct it in house. We’ve helped thousands of businesses for this very purpose. 

Buying new equipment/machinery – Equipment and key pieces of machinery can breakdown unexpectedly or become out of date. Often, this can be a significant outlay and cause delays in production. We can provide finance for business owners to purchase equipment and machinery. All our loans are unsecured (backed by a personal guarantee) so this means your client would own the equipment from the outset.

Deposits for property purchases – Business owners will often need full deposits before being able to apply for commercial mortgages. We can provide the funds for this, which means your clients can go to their bank, secure the full mortgage and then settle in full with us. They can repay in full with no early settlement or exit fees, making the process ideal for this scenario.

Stock purchases – Many of your clients will go through busier and quieter periods. It is important that they are prepared and can take advantage of busier times. We can help with providing finance for large stock purchases, which can provide your clients with peace of mind and often reduce overall costs.

Tax funding – Tax bills can creep up on business owners and often leave large unforseen dents in their cash flow. We can provide finance to cover the bill and spread cost out over up to 60 months. 

Funding a new project or product – For your clients, it is imperative that they stay commercially competitive and come up with new ideas to engage their current client base and attract new customers.

Refinancing existing debt – We also offer loans to refinance existing business debt. As long as the debt is registered under the business rather than anyone personally we can look to consolidate that into one repayment. This can often be easier to maintain and can reduce your monthly outgoings, assisting with cash flow.

What can’t we cover?

There are a few loan purposes that we are unable to help with: 

Refinancing of personal debt – We’re unable to provide finance for the consolidation of personal debt. Even if the debt was taken out for the purpose of benefiting the business, if it  is under a personal name we’ll be unable to help.

Onwards lending – We can’t help if the funds are going to be passed outside the business that has applied to either an individual or another business. The finance we provide must stay within the business and directly benefit the business is applying.

Speculative ventures that aren’t related to the core activity of the business – We’ll need to see how the loan purpose will benefit the business. It cannot deviate too far from the core activity of the business. For example, if your client owns a bakery but wants to expand into I.T. sales, this wouldn’t be something we could provide finance for.

Are you a looking for fast, affordable funding solution for your clients now?

Get in touch with our Partnerships Team at ukpartners@fundingcircle.com or give them a call on 0203 308 9708.

Meet the Risk team

At Funding Circle we want to help you earn attractive, stable returns by lending to small businesses across the UK. In the second installment in our series, we’re meeting with the teams that work behind the scenes to make that happen. Last month we spoke with the Credit Assessment team about how they assess individual applications. This time round caught up with James and Andor from the Risk team to discuss how they build our models and set our credit criteria.

Thanks for joining us. First up, what are your job titles and what areas do your teams look after?

James – I’m a Senior Data Scientist on the Decision Science team. We do the statistical modelling that sits behind our risk models. We’ll look at all the data we have on all our borrowers, including the information they provide when they apply, their financial statements and bank data, plus external data we get from credit bureaus. 

Then we build statistical models so that we can identify and accurately price the businesses we can to lend to. This serves two key purposes:

  • Identifies the businesses we don’t want to lend to 
  • Identify the businesses we do want to lend to, and give them an accurate price that’s fair to both them and to investors

Andor – I’m a Lead Analyst on the Credit Strategy team. Once we have the model from James’ team, we need to figure out what actions we want to take for each borrower type. For example, of the businesses we can serve, how much can we let them borrow? If they’re really low risk, they might be able to borrow more than others.

We’ll also look at what documents they need to provide. For example, we’ll often ask for extra information for large loans. 

What goes into creating a risk model?

James – It starts out by identifying that we can improve our model. It might be that there’s a new data source available, for example this year we can start using CCDS data, which is bank statement data that comes from a credit bureau. 

The next step is collecting all the data. This is usually the trickiest part, organising all the data into a format that will allow us to build models how we need to.

We’ll then start analysing the data. We’ll adjust different variables to see what impact they have on how loans perform. We’re looking to identify relationships within the data that can help us make better predictions on which loans will default or be repaid. 

Once we’ve found those relationships, we’ll do extensive testing and validation of the model before passing it onto the Credit Strategy team. 

Andor – We then use the model to make criteria for who to approve and what their interest rate should be. We’ll also look at how much they can borrow, what they need to provide when they apply and so on. 

We then involve stakeholders from around the business to make sure everyone is aligned on the new changes. We’ll get feedback and provide training. We want to provide a framework for everyone involved so that we can get the best outcomes for all our customers.

We don’t just rely on models though. Our Credit Assessment team apply their experience to look at the individual circumstances of the businesses that are applying, then use the model, the criteria and all the information available to make a final decision. 

How do you balance trying to give the best price for business and investors?

James – It’s a difficult balance to strike. If you wanted to minimise risk completely then you wouldn’t lend to anyone. Then at the other extreme, lending to everyone would have a very high level of risk.

Approving the wrong people or lending too much to a business is not only bad for investors, it’s bad for the business that then struggles to repay. We really believe in helping small businesses and want to help as many as we can, but we need to do it in the right way. 

What expertise do you need in the team to do this?

James – The main role of our team is looking at lots of data and trying to get something useful out of it, so our team features a lot of PHDs in areas like physics, statistics, computer science and so on. You need to be passionate about finding relationships in data.

Andor – Our team has a really strong background in data analytics and credit risk. People have come from various large organisations and been involved in asset finance, credit cards, loans, and they bring all that knowledge to help us improve at Funding Circle. 

Do you have other responsibilities?

Andor – We work with people from around the business and there’s always ideas popping up for ways we can improve things. If we can support on them we’ll always help out, so we get involved in ad hoc projects.

James – As well as the credit models, we also advise on fraud capture and marketing models. Similar to Andor’s team, we work with teams from around the business too. We have a lot of information that can be used to improve different aspects of the business, so we can look to improve things in a variety of ways.

What’s the culture on the team like?

James – Our team is naturally very analytical. We don’t like to take chances, if we have an idea we need to back it up, I guess we’re very critical in that sense. We’ll argue our corner, but it’s all about getting the best results for our customers. 

Andor – I’ve worked in other large finance companies, and the big difference here is that you work much more closely with senior managers. Meeting with the CRO (Chief Risk Officer) elsewhere is rare and usually a big deal. At Funding Circle though, we can go and discuss ideas with Jerome (our Global CRO) or other senior leaders whenever we need to. Having access to their insights and experience in your daily work is really valuable and makes the whole team more productive.

How does it feel to work for a company that’s helping investors and small businesses?

Andor – What I think about is that we’re not only fulfilling a need for both sets of customers, but they go on to achieve even more afterwards. So whatever you do in the day to day, by helping small businesses grow or investors get a better return, that has an exponential impact on the wider economy. 

James – My dad runs a small business, so on a personal level it’s a mission I really believe in. Most people work in a small business, so supporting them while also helping investors make a return is a really good place to be.

By lending to businesses your capital is at risk. Not covered by Financial Services Compensation Scheme. All information correct at time of publishing. 

Chief Risk Officer’s update – August 2019

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 second of our series, Jerome will provide his view on the current macroeconomic climate in each of our markets, what this means for the businesses you lend to, and the actions we have taken to protect your interests.

Fair economic conditions, with some increasing uncertainty

In my last update, I discussed how the economies of the four countries where investors lend through Funding Circle have recovered since the last recession. Across the UK, US, Germany and the Netherlands, these conditions have largely remained in place.

However, over the past six months we have started to see some increasing signs of uncertainty. In the US, interest rate rises—and subsequent cuts—point to an indecisive approach from US central bankers. In the UK, there is increasing political and economic uncertainty around the possible consequences of Brexit. At the same time, rising trade and political tensions have heightened anxieties in export-oriented economies like Germany and the Netherlands, who sell more goods than they buy. Despite this, these economies are performing well, with unemployment and central bank interest rates still at historically low levels.

Maintaining attractive returns with a prudent approach

We update our projected returns every three months. For each group of loans, we combine the actual annualised return received to date, and our latest estimates for the remaining term of the loans that have not yet been repaid. Our most recent update shows returns remaining stable since our Q1 update.

Projected returns* after fees and bad debt, all markets

Source: Funding Circle

At Funding Circle, our team carefully monitor the macroeconomic environment and regularly update and adjust our credit models to reflect changing conditions, tightening when necessary. Over the past twelve months we have prudently adjusted our lending criteria to strengthen the resilience of the loanbook, which is well-positioned for any potential changes to the wider economy.

Projected returns after fees and bad debt, Q1-Q2 2019 loans

Source: Funding Circle

The above chart shows the loss coverage**—the amount bad debt would need to increase by before investors experience negative returns—of the loans being taken out in each of our markets this year. As an example, if businesses experienced conditions similar to those in 2008, our stress-testing shows investors could still expect to earn positive returns. 

This approach should allow us to continue delivering attractive returns to investors across all our markets.

UK

Brexit uncertainties notwithstanding, overall UK small business performance has remained stable. However, there is a small segment of the market which has been underperforming. I have previously discussed how a significant expansion in consumer borrowing since 2013 has led to an increase in the number of individuals being made insolvent. While you don’t lend to individuals through Funding Circle, this trend has had some knock-on effect on the insolvency rate of UK small businesses; the smallest of whom may be more reliant on lines of personal credit when managing their business cashflow.

UK small business and consumer insolvencies (Q1 2008 = 100)

Source: Gov.uk

The large majority of businesses you lend to are performing in line with expectations, however the worsening consumer credit environment has impacted a small population of loans in our higher risk bands. Our 2016 – 2018 cohorts were updated in April to reflect this. 

Projected returns after fees and bad debt, UK

Source: Funding Circle (as of 30th June, 2019)

Last year we made a number of adjustments to our credit policies and risk models to significantly reduce investors’ exposure to this segment of businesses. While we have already seen some positive results, earlier this year we further tightened our lending criteria. We have also increased some of the interest rates paid by businesses. This will help protect returns during a period of increasing uncertainty and loans originated in 2019 are now expected to deliver net returns of 5% – 7%.

US

In the US, the economy has been performing well, with both small business and consumer insolvencies remaining significantly below pre-recession levels.

US small business and consumer insolvencies (Q1 2008=100)

Source: Paynet, Federal Reserve

While currently very healthy, we are mindful that the current business cycle has lasted for a record ten years. The ongoing trade issues with China could affect this, while the Federal Reserve has also started to cut interest rates. We have also started to see some wider business volatility, which has fed-through to the projected returns for loans taken out in recent years. 

Projected returns after fees and bad debt, US

 Source: Funding Circle (as of 30th June, 2019)

In light of this, we have strengthened the US loanbook ahead of any changes to the business cycle, by tightening our lending criteria and increasing the interest rates paid by businesses.

DE/NL

Both the German and Dutch economies continue to perform strongly, with the insolvency rate across both individuals and businesses continuing to fall.

DE/NL small business and consumer insolvencies (Q1 2008 = 100)

Source: DESTATIS, CBS

Rising global trade tensions have led to a slight reduction in business confidence, although levels remain well above those seen during the last recession.

DE small business and consumer confidence index

Source: OECD

As a result, loan performance across both Germany and the Netherlands has remained strong, although we will continue to carefully monitor both markets for any sign of stress.

Projected returns after fees and bad debt, DE


Source: Funding Circle (as of 30th June 2019)

Projected returns after fees and bad debt, NL

Source: Funding Circle (as of 30th June 2019)

Making the right adjustments

As Chief Risk Officer, my role is to help you earn attractive returns throughout each stage of the economic cycle. Although we have seen some macro volatility in our markets, we believe we have made the right adjustments to maintain the resilience of the businesses you lend to.

The four markets we operate in are great places to lend to small businesses. Careful monitoring, intelligent use of data and prudent action should allow us to continue providing you with 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 30th June 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.

**The loss coverage of any given group of loans is the gross yield—minus the 1% annual servicing fee—divided by the projected bad debt rate of those loans. It is a simple representation of how much bad debt would need to increase by before it is higher than the interest investors receive from those loans. As bad debt does not occur evenly over a loan’s term, the loss coverage assumes loans are held until they have been fully repaid and recoveries have been received. There are other factors that affect how loans might perform in an economic downturn, and the loss coverage should not be seen as a guarantee of performance. The loss coverage for each group of loans reflects that bad debt rates are projected as a range.

Disclaimer

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.

Update to our projected returns

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 have updated the projected returns for each lending option.

What are the new projected returns?

The projected returns are a forward looking estimate for loans added to your portfolio, and do not affect loans you already hold. As a result of our review, the projected returns for our Balanced and Conservative lending options are now:

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 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 projected returns will affect 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 is not covered by the Financial Services Compensation Scheme.

The Funding Circle team

Top investor articles from 2018

Want to know what other investors are reading? If you’re new to the platform or missed any of these last year, below we have our top investor articles from 2018. Remember to keep a look-out for new blogs, videos and more in our monthly newsletter.

Make the most of your lending experience

Find out how to make your money work as hard as possible for you. This article outlines five key tips to help you to get the most out of your investor account so you can earn a stronger, more stable return.

Digging into the data: How investor returns change over time

Investor returns often go through distinct stages. So you know what to expect, this article runs through how an account with us typically performs and the reasons why. It’s a helpful read for all investors!

What is compound interest and how can it boost your earnings?

Do you know how compound interest works? Did you know that it can make a huge difference to your earnings? If you are a bit confused then check out this blog post. It clearly explains what compound interest is and how you can use it in the long term to generate larger returns.

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

Defaults are a natural part of lending to businesses and something investors should understand and be fully comfortable with. This post explains how bad debt works, how we account for it and what we do to minimise its impact.

How to earn a more stable return with diversification

Diversification is incredibly important. It enables you to spread your risk and earn a more stable return in the long term. In this post we use an infographic to explain what it means and how you can diversify at Funding Circle.

Saving for a house – by Jasmine Birtles

If getting on the property ladder or buying your next property is a long way off, personal finance expert Jasmine Birtles outlines a few things you can do to speed things up. She highlights the different schemes available and saving techniques for potential homeowners in the UK.

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

Helping more investors build a well-diversified portfolio

At Funding Circle, we want you to earn attractive, stable returns by lending to UK businesses. To help you achieve this, we suggest that investors diversify their portfolios by lending small amounts to lots of different businesses.

We want every investor to benefit from a well-diversified portfolio and have a positive lending experience. As part of this, we have decided to change the minimum amount you can lend to each individual business from £20 to £10.

Helping investors with smaller portfolios diversify

Our automatic tool lends no more than 0.5% of your portfolio to any individual business. This means that if one of the businesses you lend to is unable to repay their loan, only a small amount of your portfolio would be affected. Spreading your risk in this way helps you earn a more stable return.

By reducing the minimum loan part size to £10, more investors will be able to build a well-diversified portfolio. Every new investor who lends £2,000 or more will now lend to at least 200 businesses. Lending just £1,000 (the minimum initial transfer) now allows investors to lend to at least 100 businesses, which we believe provides a strong level of diversification. For example, 93% of investors who have diversified like this for at least a year are earning 4% or more.

Please note your existing loan parts will not be affected and this will only affect new loans you lend to. If you lend more than £4,000 you will see no change as our lending tool will lend more than £20 (0.5% of your portfolio) to each business. By lending to businesses, your capital is at risk.

If you have any questions on today’s news, please don’t hesitate to get in touch.

Enjoy lending,

The Funding Circle team

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

Update to our projected returns

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.

Enjoy lending,

The Funding Circle team

Introducing your new statistics page

At Funding Circle we are committed to providing you with access to easy to understand loan performance information. Today marks the next phase of this commitment as we launch a new and improved statistics page, which will be updated every three months and will provide you with a clearer and more accessible view of how loans are currently performing.

Exploring your new statistics page

Alongside our global lending figures, your new statistics page is designed to allow you to easily understand three key areas of information:

  • Lending – How much have investors in the UK lent to businesses?
  • Returns – How are loans currently performing in the UK?
  • Businesses – What kind of UK businesses are you lending to?

Providing you with the full picture of loan performance

The performance information we provide you on our statistics page uses our most up-to-date estimates, or projections. It’s important to remember that over an investment period there will always be some businesses who are unable to repay their loans. To reflect this, our projections are updated every three months using the actual performance data experienced so far. You can see an example of how this works in the chart below:


The projected return is the return we estimate loans will achieve over their lifetime. This is an annualised number and is updated every three months. It is calculated using the actual return received to date, plus the estimated return for outstanding loans that have not yet been fully repaid.

The return is shown as a range to reflect that the actual number of businesses who are unable to repay their loans could be higher or lower than estimated. As loans are repaid, the range of return shown will narrow and will be updated to reflect actual performance. Full explanations of all our statistics can be found in our definitions section on the statistics page.

Presenting you with data in a relevant format

It’s important that the data we provide continues to be presented in a way that’s relevant to investors’ needs. As part of this latest update we have withdrawn the downloadable loanbook.

While the loanbook was a useful resource for early-investors lending through Funding Circle, as the platform has grown and become popular with a broader group of investors, the number of people downloading it has fallen significantly. For example, approximately only 0.3% of investors downloaded the loanbook in the last month. It’s important that you are still able to access loan-by-loan information on the businesses you are lending to, which you can download from your Funding Circle account.

Validating our performance data

As part of our commitment to providing transparent loan information to investors, we have partnered with AltFi Data. AltFi Data are independent and well-respected industry experts with deep knowledge of online lending, and they will provide independent verification of the figures we provide to you. They will review the loan information every three months to ensure it is accurate and up to date.

If you have any questions or would like more information, please don’t hesitate to get in touch.

Enjoy lending,

The Funding Circle team

You can now transfer your existing ISAs into Funding Circle

Since last November more than £90 million has been lent directly to businesses through the Funding Circle ISA, and we’re pleased to see so many of you taking advantage of the opportunity to earn attractive, stable returns tax-free. From today, you are now also able to transfer any existing ISAs you hold over to your Funding Circle account, subject to any restrictions set by your current provider.

This means that any funds you hold in a Cash, Stocks & Shares, or Innovative Finance ISA can be transferred into your Funding Circle ISA, allowing you to earn a projected return of 7.2%* per year after fees and bad debt. Existing ISA transfers will not affect your £20,000 ISA allowance, unless you are transferring funds you have used to subscribe to an ISA this tax year.

How do I transfer my existing ISAs?

Please don’t directly withdraw funds from any existing ISAs you hold, as you may lose the tax-benefits associated with them.

We’ve made the process for transferring your existing ISAs as smooth as possible. All you need to do is fill-out an ISA transfer form online, then print, sign and return it to us. Simply follow these steps and we’ll do the rest for you:

1. Navigate to the Transfers page in your account

Sign in to your Funding Circle ISA account and navigate to the Transfers page. Select the ‘Transfer existing ISA’ option.

If you do not have an ISA account you will need to open one before being able to access this option.

2. Select the type of ISA you would like to transfer

You can choose from Cash, Stocks & Shares or Innovative Finance ISA depending on the type of ISA you wish to transfer. Remember you can submit a separate transfer request for each ISA you hold.

3. Answer a few quick questions

We’ll use the answers you provide us to fill out your transfer form. Please take care to ensure every answer is entered accurately. If anything isn’t clear, our friendly team are on hand to help.

 

4. Print, sign and date your transfer form

Please post it to the following address:

Freepost FUNDING CIRCLE INVESTOR ISA

That’s it – no need for a street address or postcode. Please remember to write in capitals where indicated. As a Freepost address, you don’t need to attach a stamp or pay for postage.

5. We’ll do the rest

We’ll get in touch with your ISA provider and arrange for your funds to be transferred over to your Funding Circle ISA account.

How long does the ISA transfer process take?

Once we’ve received your form, we’ll get to work straight away. It can take approximately 20-40 working days depending on the type of ISA you want to transfer:

  • Once we receive your transfer form we will send this to your previous ISA provider
  • Your old provider will then process the request and transfer your funds to us. Cash ISAs can take up to 15 working days to process, with Stocks and Shares and Innovative Finance ISAs taking up to 30 working days.
  • Once we have received your funds we will transfer them to your Funding Circle ISA. This can take another five working days.

Q&A

 

Why can’t I sign and return the form online?

Many ISA providers require the transfer form to be signed with a ‘wet ink signature’ before they proceed with any transfer.

Do ISA transfers count towards my subscription limit?

Transfers of existing ISA accounts do not count towards your subscription limit for this current tax year. However, if any of the funds you are transferring were paid into an ISA this tax year then these funds will count towards your subscription limit.

Are there any limits to how much I can transfer?

You can choose to transfer all or part of any funds you have paid into an ISA in previous tax years. However, if you are transferring funds you have paid into an ISA during this tax year, you must transfer it in its entirety. You can transfer as many existing ISAs as you wish.

Can I cancel an ISA transfer?

Please get in touch with both us and your ISA provider as soon as possible if you would like to cancel your transfer. If your existing ISA provider hasn’t started processing the request, then we may be able to cancel it and your funds will stay where they are.

You can find more information on the Funding Circle ISA in our FAQs, or please feel free to get in touch.

Remember, by lending to businesses your capital is at risk.

Enjoy lending,

The Funding Circle team

*The projected return is an estimate of the annual return, after fees and bad debts, that a diversified investor could earn by lending through the Balanced lending option as of 2nd May, 2018. You can see how the return is calculated here. Actual returns may be higher or lower and by lending to businesses your capital is at risk.

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

At Funding Circle our aim is for you to earn stable returns by lending directly to businesses. With any type of lending, your capital is at risk and it’s normal for some businesses to be unable to repay their loans. We call this bad debt, and we expect a certain percentage of it to occur each year.

When a business falls behind with their repayments, our Collections and Recoveries team will work closely with them to achieve the best possible outcome for investors. We spoke with Andrew Jackson, who heads up the team, to find out more about how Collections and Recoveries have evolved over the past few years.


Andrew joined Funding Circle in 2013

Hi Andrew, thanks for speaking with us today. A lot has changed since we brought Collections and Recoveries in-house in early 2014.  What does the team look like now?

In the beginning it was just a part-time colleague and myself handling everything. Now we have more than 20 people in five specialist teams:

  • The Loan Servicing team deals with borrowers who are on time with their repayments, but may have queries or requests such as asking for statements of account or settlement figures.  
  • The Business Advisory team carries out portfolio monitoring on the whole of the loan book. They look for warning signs and work with borrowers to find ways to keep payments on time.
  • The Collections team deals with missed payments. They know as soon as a direct debit is cancelled, or 3 days before the due date if a direct debit bounces.
  • The Recoveries team deals with any loans where the borrower or guarantor has entered a formal insolvency process, or that are defaulted.  
  • Last but by no means least, the in-house Recoveries Litigation team carries out our legal work, with the help of an external panel when required. Bringing litigation into my team in 2016 enabled us to work faster and cheaper in commencing bankruptcy proceedings, obtaining security and commencing legal action.

We also work closely with external tracing agents, private investigators, surveyors, insolvency practitioners, turnaround experts and lawyers.

How has the approach of the team changed since 2014?

In the early days we were testing out new approaches and ideas, which set us apart from the usual strategies taken by banks. We found our approach seemed to work much better than industry expectations, and resulted in lots of positive feedback as well as recovering more money for investors.  

You mentioned your strategies are working? What results have they had?

We’ve seen exceptional performance over the past few years. Moody’s (the ratings agency) have published reports suggesting that we should get 30% lifetime recovery on our asset class*. However, we have seen significantly higher results, and we predict that will continue. Over the last few years, investors have consistently earned returns on average between 6-7% per year after fees and bad debt.

The difference with Funding Circle is that we don’t give up on borrowers simply because they are going through a rough patch. Entrepreneurs are a tenacious bunch. They learn from their mistakes, get back on their feet, and start new businesses – and it is from those new ventures where we see a significant portion of our recoveries. I think businesses understand this.

When we explain our policies to them they often agree that they are fair – even those who we believe are not being as cooperative as they could be. When we explain to them why we have reached that conclusion they tend to see things from our perspective, and then work alongside us in a much more open and honest way.

Thanks Andrew, we appreciate you taking the time to speak with us!

You can learn more about how the Collections and Recoveries process works at Funding Circle with the blog posts below:

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

How our collections process works (part 1)

How our collections process works (part 2)

How long does it take to receive recoveries?

Alternatively, if you have any questions please feel free to get in touch.

Enjoy lending,

The Funding Circle team

*Frank J. Faboozi, Handbook of Finance, Volume 1: Financial Markets and Instruments: v. 1, (J. Wiley & Sons, 2008)

Make the most of your lending experience

Here are some of our key tips to help you get the most from your lending experience as a Funding Circle investor.

Set yourself up to earn a more stable return

Data at Funding Circle shows that investors who diversify by lending small amounts to many businesses are more likely to earn a stable return. 

Becoming diversified has never been easier, as our lending tool automatically lends no more than 0.5% of your portfolio (subject to a minimum of £10) to each business. We suggest building a portfolio of at least £2,000 to help you lend to at least 200 businesses.

Check your Lending Settings are right for you

When lending through Funding Circle you can choose from one of our two lending options, Balanced or Conservative. Both options will allow you to quickly and easily build a portfolio of creditworthy businesses depending on your personal preference:

  • Balanced – lend to the full range of creditworthy businesses, aiming to achieve an attractive, stable return.
  • Conservative – focus on businesses that have been assessed as lower risk, but with a lower projected return.

It’s important that the lending option you have chosen is right for you. You can review and change your chosen option in the Lending Settings page when logged in to your account. This is also where we will display the current projected return for each option.

Boost your earning power with the Funding Circle ISA

The Funding Circle ISA works just like your Classic account, but the interest you earn is tax-free. This could provide you with a significant boost to your earning power. For example, if a higher rate taxpayer lends £20,000 through the Funding Circle ISA and earns a one-year return of 6%* after fees and bad debt, their post-tax earnings after one year could increase from £674 to £1,128.

If you haven’t yet opened a Funding Circle ISA, you can do so by logging in to your account. Tax rules and relief can change depending on your personal circumstances, and you can find out more about the features and risks of lending through a Funding Circle ISA here.

Recognise bad debt as a normal part of lending

When lending to businesses there will always be some who are unable to repay their loan. This is called bad debt, and we account for it when calculating projected returns. Bad debt is rarely spread out evenly over the course of the loan term, and tends to happen during certain periods of a loan’s lifetime. You can see this from the chart below, which shows the annualised return, after fees and bad debt, earned by an example investor over a five year investment period:

In our example, based on five years of loan performance data, an investor lent £10,000 across all the loans originated through Funding Circle in 2012. Each month, the loan repayments and interest received were lent to new borrowers.

You can see that in this example most bad debt occurred during the period marked as phase 2, but then reduced as loans continued to mature and recoveries arrived. You can read more about how returns can change over time in our blog, but the important thing to remember is that a decrease in your return due to bad debt is an expected part of the lending experience, and will typically stabilise as your loans mature. Remember past performance is not a guarantee of future returns.

Think long-term

A modest regular contribution and a patient approach can have extraordinary results. For example, if you start with £10,000 in your Funding Circle account and set up a standing order for £100 a month, after 30 years you could have an account worth over £140,000**. Find out more about setting up a standing order, or see how your own portfolio could grow over time with this compound interest calculator.

It’s important to remember that as you lend to your own individual portfolio of loans your return may be higher or lower. By lending to businesses your capital is at risk and funds are not covered by the Financial Services Compensation Scheme. Tax rules and relief can change depending on your personal circumstances. 

We hope these tips help you get the most out of lending to businesses through Funding Circle. If you have any questions about your account, please get in touch.

Enjoy lending,

The Funding Circle team

*The projected return for the Balanced lending option is 4.5-6.5%, after fees and bad debts, but before tax. Your actual return may be higher or lower. See the full calculation here.

**Based on earning 5.5% per year. Returns are compounded monthly and are after fees and bad debt but before tax. Based on this, an account worth £10,000 with a standing order of £100 a month would be worth £143,653.81. Returns are calculated using a compound interest calculator.  

Refining your lending experience

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.

Enjoy lending,

The Funding Circle team

The Funding Circle ISA is on its way!

We’re excited to announce that from Thursday 30th November we will start rolling out the ISA account to all current investors. This means soon you will be able to earn attractive, stable returns tax-free.

How will the ISA account work?

The Funding Circle ISA will work just like your existing Funding Circle account, while also providing you with:

  • A boost to your earning power – the interest you earn with an ISA is tax-free. As an example, if a higher rate taxpayer lends £20,000 through the Funding Circle ISA and earns a one-year return of 7.5* after fees and bad debt, their post-tax earnings after one year could increase from £900 to £1,500.
  • Flexibility the ISA account is a flexi-ISA. This means you can withdraw any available funds without affecting your annual £20,000 ISA subscription limit, providing you transfer them back in by the end of the tax year.

     

  • A simple investment experiencecreating an ISA account takes just a few minutes, and can be opened from your existing Funding Circle account using the same login details. Once opened, choose one of our two lending options and start lending.

     

  • An easy way to build a well-diversified portfoliowe recommend lending £2,000 or more, so you can spread your funds across at least 100 businesses for a more stable return. If you would like to start with less, we are introducing an initial minimum card transfer of £1,000 when opening an ISA account or a new Classic account.   

     

  • No fees to access your money – as with your existing Funding Circle account there are no fees for selling your loans

     

As part of this process we’re also renaming existing Funding Circle accounts as the Classic account. Remember, by lending to businesses your capital is at risk, while tax rules and relief can change depending on your personal circumstances.

Providing every investor with the best possible lending experience

Based on the conversations we have had with investors, we expect the ISA to be popular. To manage this interest in the fairest way, and to ensure there are enough lending opportunities on the platform for all investors to continue earning attractive, stable returns, we will be opening up the ISA Account to all current investors (those who created an account before 23rd November) in the following order:

  • Investors who are actively lending (have lent to a business since 1st May 2017)
  • Investors not actively lending but who have previously transferred in funds
  • Investors who have not previously transferred in funds
  • New investors and those who have opened a Classic account after 23rd November 2017

We will open the ISA to each group of investors in the order their account was created. We will keep you updated on our progress over the next few months.

We’ll email you when your ISA is ready to be opened

Once you’ve received your email confirming you can now open your ISA, you’ll be able to login to your account through our website and create an ISA account in a few easy steps, subject to eligibility criteria:

To help manage demand, initially you won’t be able to transfer any existing ISA subscriptions you hold to your ISA account. You will be able to transfer your Funding Circle ISA to another ISA provider, although it’s important to remember that loan parts that can’t be sold won’t be transferred and will no longer be eligible for tax-free interest.

Once all current investors have had an opportunity to create an account, we will launch the ISA to new investors. Following this, we will start to rollout the ability for you to transfer in existing ISA subscriptions.

Although you can manage both an ISA account and a Classic account using the same login, it’s important to remember they are separate accounts that will lend to a separate portfolio of loans.

Transferring loan parts from your Classic account to your ISA account

Due to regulatory restrictions, you are unable to transfer loan parts directly from your Classic account to your ISA account. However you can sell your loans quickly and easily to other investors, providing they aren’t late or experiencing any credit issues, before withdrawing your funds to a UK bank account and then transferring them to your ISA.

We’re pleased to be able to provide you for the first time with attractive, stable returns tax-free. You can find out more about the ISA account, and register your interest if you are not currently lending through Funding Circle, here. More information can also be found in our FAQs. If you have any questions please get in touch.

Enjoy lending,

The Funding Circle team

*The projected return is an estimate of the annual return, after fees and bad debts, that a diversified investor could earn by lending through the Balanced lending option as of 23rd November, 2017. You can see how the return is calculated here. Your actual return may be higher or lower, and by lending to businesses your capital is at risk.

Removing manual bidding – 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.

Enjoy lending,

The Funding Circle team

We’re launching an exciting new lending experience

Since we launched Funding Circle in 2010, our aim has been to enable investors to earn attractive, stable returns by lending directly to small businesses.

Recently, we have been reviewing how lending through Funding Circle works, with the aim of making lending simpler, better and fairer for all investors. After careful consideration, we have taken the decision to make some improvements to your lending experience.

On 18th September, we will launch a significantly improved and upgraded version of our existing Autobid and Autosell lending tools, and the option to manually choose which businesses to lend to and which loan parts to sell will be withdrawn.

How will the new lending experience work?

Investors will be able to choose one of two new lending options based on their personal preference. Both options will be available as a Funding Circle ISA, which we intend to launch later this tax year.

  • Balanced: you will automatically lend to the full range of creditworthy businesses (A+ to E), aiming to achieve an attractive, stable return. This will allow you to build a balanced portfolio similar to the makeup of small businesses in the UK today. The projected return is estimated to be 7.5% per year after fees and bad debt.
  • Conservative: you will focus on lending to businesses that have been assessed as lower risk (initially A+/A) but with a lower projected return. The projected return is estimated to be 4.8% per year after fees and bad debt.

Your actual return may be higher or lower, and by lending to businesses your capital is at risk. You can read more about the improvements we are making, and what they mean for you, on our announcement page.

As part of the improvements we are making we are also updating the interest rates at which you lend to businesses. The projected return of both lending options have taken these changes into account. We’ll be introducing these new rates on 30th August, and you can read more about them here.

As part of this change we will also be updating our Terms and Conditions. You can view a summary of the main changes here.

We always want to hear your thoughts, so please fill out the feedback form on our announcement page if you would like to give us your feedback.

Enjoy lending,

The Funding Circle team