Helping businesses buy assets. Weekly Lending Review

Week 8: 16 – 22 February 2015

Of the new loans that were listed on the marketplace last week, London and the South East were the most popular business locations and expansion was the most common reason for needing funding.

New loans available to you

There are currently 79 loan requests on the marketplace which are all available for you to lend to.

The total value of new Funding Circle loans was £11,654,900, averaging at £62,661 per loan. The largest loan value was £225,000 and the smallest loan value was £6,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn. Number of loans, value of loans and the amount lent are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 16-Feb represents the week of 16th – 22nd February 2015.

Weekly average gross yield (2 weeks rolling)

yield

Number of listed loans per week

number

Listed loan value per week

value

Total amount lent

lent

Loan parts available to buy from other investors

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Lending to more businesses looking to buy an asset

We’re pleased to announce that we are trialling a new process for asset finance loans. We’ve helped businesses access finance secured on a specific asset (such as a piece of machinery) since 2012 and we have recently reviewed how we can improve this experience, which we explain more in our blog.

Loans defaulted last week

Design agency. Loan 3446. Risk band C

This London business was established in 2009 and is in liquidation. All affected investors have been notified.

Solicitors. Loan 5102. Risk band C

This Manchester business has been incorporated since 2012 and is in arrears with their repayments. All affected investors have been notified.

Plumbing provider. Loans 2900 & 6278. Risk band C

This Telford business was established in 2001 and is entering liquidation. All affected investors have been notified.

Our collections and recoveries team are working to recover the outstanding amounts for all of these loans.

 

Enjoy lending, The Funding Circle Team

Lending to more businesses looking to buy an asset

Today, we’re pleased to announce that we are trialling a new process for asset finance loans. We have helped businesses access finance secured on a specific asset (such as a piece of machinery, equipment or commercial vehicle) since 2012, and over the last few months we have been reviewing how we can improve this experience for business owners and provide more lending opportunities for investors.

Asset finance is a competitive market which is defined by simplicity, speed and competitive rates. Businesses looking to buy an asset need more certainty over when the supplier will be paid and the interest rate that they will pay. To provide business owners with certainty of cost, asset finance loans will now be fixed rate. This will allow us to release funds for the transaction as soon as the auction ends.

As before, Funding Circle Asset Finance Limited will still hold title to the asset and in the event a business is unable to repay, we will take steps to recover the asset and sell it on behalf of investors.

A valuation of the asset will be completed by a third party specialist asset valuer, who have significant experience in valuing, recovering and selling equipment of all types. This will be provided on the financial summary page as a pdf. The recovery value of the asset is indicative and will depend on its usage and the way it’s maintained.

Whilst we will place more focus on the asset for these kinds of transactions, we will continue to carry out the same high level of due diligence when reviewing the ability of the business to afford and repay the loan. If a borrower is able to provide up to date management account information, we won’t always require bank statements for these types of deals.

We will be testing these basic processes from today, and may make further improvements as we move forward. As always, if you have any questions or feedback, then we would love to hear from you so please get in touch or join the conversation on the forum.

The Funding Circle team

Digging into the data: improving returns

Since the Funding Circle marketplace first launched, estimated annual returns have increased from 5.7% in 2011 to 7.1% in 2014. In this edition of the Digging Into The Data series we examine how interest rates have changed over time, what has caused these changes and why investors are now earning more.

Gross interest rates (bid rates) have been increasing over time

You can see in the graph below that since Funding Circle launched in August 2010, the average successful gross interest rate has increased 25% from 8.3% to 10.4%. Let’s look at the main reasons for this increase in more detail.

Gross-interest-rates-versus-estimated-returns

1) Introducing new risk bands has enabled investors to earn higher returns

The Funding Circle marketplace launched with 3 risk bands (A+, A and B) for investors to lend across. As we have grown and understood more about credit assessment we have introduced new risk bands (C and C-) to provide even more lending opportunities to help investors spread their lending across as many businesses as possible.

These newer risk bands have an attractive risk-return profile. Since being introduced in June 2012, more than £103 million has been lent to C businesses with an average gross interest rates of 11% and an expected net return of 6.4%. £32 million has been lent to C- businesses  since June 2013 at an average gross interest rates of 13.3% and an expected net return of 6.8%.

2) The introduction of Minimum Bid Rates has gradually increased gross interest rates

In 2013 we introduced Minimum Bid Rates across all risk bands. Prior to this change, the minimum gross interest rate you could bid on any loan was 4% across all risk bands. From the start of 2013 we saw a sharp fall in gross interest rates. As a result, in mid-2013 we introduced minimum bid rates to increase the overall net returns for investors. Since this introduction average interest rates have increased 24% from 8.4% to 10.4% by the second half of 2014.

Minimum  bid rates

3) We’re improving our ability to manage the supply and demand of the marketplace

Whilst the introduction of new risk bands and minimum bid rates has helped to increase the overall gross interest rates for investors, these rates fall if there is an imbalance in the marketplace. This means there are too few borrowers for investors to lend to and causes gross interest rates to fall, creating inefficiencies in the marketplace. This is one of the biggest challenges at Funding Circle.

In order to better balance supply with demand we have introduced a number of new initiatives over the last few years. These include TV advertising and partnerships with banks and accountants to increase demand from businesses. We’ve also broadened the types of investors who use Funding Circle to ensure we meet this increase in demand.

spread of investors

Improving credit policies leads to a decline in losses

Alongside increases in gross interest rates over time, improvements in our credit assessment and loan servicing policies have led to increases in the actual returns investors receive.

We publish information about the bad debt performance versus expectations on our statistics page and update this information monthly. These results show that since 2010 our credit assessment policies have consistently improved. This is down to the work our credit analytics team is doing to create better risk models, by using more and more sources of data.

We are also getting better at analysing the propensity of a business to default after they have accepted a loan. Looking at the below graph we can see that in 2013, for every accepted business that defaulted, 4 that were rejected ended up in default, this is a 3X increase compared to 2011.

Bad debt performance over time

Finally, the loan servicing team have brought down the number of businesses that are late paying from 1.5% to 0.7% as a proportion of all live loans. When a business does default the loan servicing team work to reclaim as much of the loan as possible. Currently the recovery rate for defaulted loans is 19.4p, and this rate has steadily increased  from 14.6p since we started managing defaulted loans in-house. Long term, the expected recovery is anticipated to be ~40p – increasing to 44p for loans that defaulted in the first half of 2014, and 47p for defaulted loans in the second half of 2014.

Conclusion

We hope you enjoyed this post about the improving investor returns on Funding Circle. With future changes such as ISA introduction and new tax relief for investors, we expect that lending to businesses through marketplaces will become even more attractive for investors over time; however it is important to note that interest rates can go down as well as up as your capital is at risk. We always recommend investors spread their lending across at least 100 businesses where possible to maximise their returns. You can read more about diversification on our statistics page.


The Funding Circle team

£500 million lent

What a milestone! In just four and a half years, your lending has helped more than 7,000 businesses access half a billion pounds of finance via Funding Circle.

500-million

You are now lending approximately £35 million a month to creditworthy small businesses, making Funding Circle’s marketplace the fourth largest net lender to small businesses in the UK. Since launch, this has created an estimated 21,000 jobs.

Geoff Ridgeon and David Massey run the award winning restaurant, The Exhibition Rooms, based in Crystal Palace, London. Last year they borrowed £36,000 from 763 investors to open a second restaurant, Brighton Way, based in Streatham Hill.

Geoff Ridgeon, co-owner at ‘The Exhibition Rooms’, said: “At first we tried to approach the banks, but we were consistently told that lending to restaurants wasn’t a priority this year. We were recommended Funding Circle by a friend, and after checking it out, we decided to apply. It was stress-free and straightforward, but more than anything we found that people wanted to invest in us.”

Last week, we also announced a second referral partnership with RBS (following the one we announced last year with Santander). This will help to raise awareness within the small business community of other finance options now available to them, providing you with ever more lending opportunities on the marketplace.

Highlights from 2014

As 2014 draws to a close, we wanted to take a moment to share with you some of the highlights from this year. And what a year it’s been.

Together, you’ve now helped over 7,000 businesses access finance, in excess of $800 million across both the US and the UK. Many of these businesses are going on to do some fantastic things, and we hope you enjoy reading some of their stories.

We teamed up with our colleagues over in the US and put together this short video. You’ll meet members of the Funding Circle team, watch some of our favourite borrowers from the year, and hopefully get a sense of what you’re helping to build. From cinemas in Florida, to manufacturers in Reading, we’re showing businesses there’s a better way to access finance.

Digging into the data: stress testing the Funding Circle loanbook

Funding Circle launched in 2010, in a post-recession era, and one question we’re frequently asked is what would happen to the loanbook and investor returns, if we encountered further adverse economic conditions in the UK. That’s a good question, and one we’ll aim to answer in this blog by providing results of a recent stress test we carried out.

What do we mean by stress test?

Stress testing has become a crucial part of every bank and financial institution’s risk management strategy since 2008, and for good reason. It is a way of simulating what would happen to a business in an economic downturn.

Last week, the Bank of England published the results of a UK Banking System stress test, where 3 of 8 leading banks were found to be lacking in financial strength. Although we do not work as a bank operates, we are interested in finding out what would happen to the returns of our investors on the marketplace, should we encounter an economic downturn. We feel it is important for marketplace lending to come under the same scrutiny and undergo the same test as the banks did. The scenario we are therefore going to focus on is one which was set out by the Prudential Regulation Authority (PRA) for the 2014 stress test, and is also the most stringent.

What did we do?

Recently we invited an industry leading external consultancy, Hymans Robertson, to undertake an assessment of the loanbook (all Funding Circle loans) and present their findings to us. Hymans Robertson built a stress testing model for us and applied their model to our loans so we could find out how returns would vary, if we saw another downturn in the economy, and witnessed a PRA stressed scenario. In all, 10 industry specific models were built and we followed the exact same methodology that banks and other financial institutions employ to test the Funding Circle loanbook.

Data

The primary component Hymans Robertson used when building their stress model was data surrounding historic insolvencies by sector over a period of 23 years of data (1990 – 2013). This data, available from The Insolvency Service, provides invaluable insights into how every UK sector fared during the 1992 and 2008 recessions. Looking back at both is important as they had different macroeconomic variables, which would have affected sectors differently. For example, high interest rates were a contributing factor to the 1992 recession; they rose to over 14% in 1989, whereas interest rates in 2008 were very low.

Concentration

Hymans Robertson also conducted an analysis around industry and region concentration levels of our borrowers. The results confirmed that the Funding Circle loanbook is well diversified across UK regions and industry sectors. As their model uses historic country-wide sector data of business insolvencies, it is important  to ensure that our borrowers are representative of the UK. I.e. if we only had financial services borrowing through the marketplace, allocated to the B risk band, all based in London, this would lead to bias in the final results.

The PRA scenario and the results

Hymans Robertson tested several different stressed situations, but we will focus on the PRA scenario. 9 different economic factors were used in the model, including income gearing, the unemployment rate and the average wage. In this scenario changes to GDP, interest rates and inflation over the course of 3 years were as follows:

  • UK GDP drops by 4% (cumulative)
  • Interest rate increase: 0.5% to 4.2%
  • Inflation increase: 1.8% to 6.6% peak

Below we explain in more detail how the assessment worked but at a very simple level: in the most extreme economic conditions which the PRA set, average annualised returns for Funding Circle investors would remain above 5.5%. These results are encouraging.

The results are outlined in the below graphs. Overall, we would expect to see an increase in our annualised bad debt rates from 2.2% to 3.4% at peak on a yearly basis, which would lead to a fall in the overall annualised net return investors would earn, from 6.7% to 5.6%. To put this into context, the expected increase in loss rates represents a c. 50% increase. During the 2007 recession, UK insolvencies increased by 65%.

If you’re lending to businesses through Funding Circle, the peak of bad debt would happen in year 2, where the annualised bad debt rate would increase from 2.5% in year 1, to 3.4% in year 2. It would however, start to fall again in year 3.

losses

The bad debt rates pictured above are reflected in the expected annualised returns graph below. After experiencing an increase in losses, annualised returns would fall to their lowest point in this scenario, to 5.6% in year 2. Once bad debt rates fall again, annualised returns are expected to increase over the remaining years.

returns1

Limitations of this scenario

As with all stress testing assessment, it is important to note that past performance is not necessarily a guide to future performance. The nature of modeling for future economic events is that it is an estimate. For example, currently interest rates and inflation are low so stress testing for every institution at this time, is based on a predicted time for when interest rates and inflation rise.

Conclusion

In the most extreme stress case scenario outlined by the PRA, and modeled by Hymans Robertson, the outlook for investor annualised returns remains positive. We would estimate annualised returns to drop from 6.7% to 5.6% across Funding Circle’s portfolio of loans, over a three year stressed period.

We are committed to building a stable marketplace which continues to be representative of the whole small business lending sector in the UK, and we’re confident in the future of investor returns through Funding Circle, and the sustainability of the marketplace through future economic cycles.

You can read more about the performance of Funding Circle loans on our statistics page.

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Other macroeconomic points to consider

As well as interest rates, inflation and changes in GDP, income gearing also plays an important role in how small businesses perform.

Income gearing, or in other words, how much income there is available for a business to service debt, is one of the leading indicators of SME (small and medium sized enterprises) insolvencies. SME income gearing is at the lowest level since 1987, which means that the impact of a macroeconomic shock will be lower on small businesses. The graph below shows income gearing for the SME sector in the UK.

gearing

 

What a night! Highlights from our November Investor Evening

At the end of November we held our second investor evening at our London office. The invitation was open to all of our investors, as we wanted to meet more of you in person and hear your opinion first-hand. Thank you to all who came, it was a valuable forum for us and is something we’ll look to do again in the new year.

We appreciate that London is not accessible by all, so we’ll be producing 3 videos from the evening for those who would have liked to attend, but couldn’t. The first will show you the evening’s highlights, the second will be a deep dive into property lending with Luke Jooste, who heads up property finance at Funding Circle, and in the third video, you’ll hear more from the co-founders and what they see for the future of Funding Circle.

How did the evening go?

We kicked off the evening with some informal drinks and an introduction from James Meekings, co-founder of Funding Circle, and Samir Desai, co-founder and CEO. We then heard from key members of the Funding Circle team who talked about their areas in more detail, and we finished by opening the floor up to questions.

Key themes of the evening

Product developments

Steve Green, Product Director, gave us some insights into how people access our website. Since 2012, we’ve seen a steady increase of visits from mobile and tablet devices, and a decrease in users accessing Funding Circle via their desktop. Of mobile devices, iOS has remained the most popular, and it’s for this reason that we launched an iOS app at the end of 2013. A quick note to Android users: we are committed to developing an app for Android, but our current focus is on improving our iOS app first.

product

 

David Townsend, our VP of Engineering also gave an overview of what we’ll be doing to help scale the business over the coming months.

Loan performance

Ari, Head of Underwriting, and Rahul, Head of Credit Analytics, discussed the performance of our loan book in more detail, and how our loss rates, after recoveries, have improved year -on-year, despite introducing new risk bands such as C- in 2013. (Origination values are: 2010-2011: £19.6m, 2012: £49.2m, 2013: £129m, 2014: £250m to date and you can download this information in our loan book on the statistics page.)

lossrate

Property finance at Funding Circle

Luke gave an overview of the types of projects your lending is contributing to. Stay tuned for the next blog of this series where Luke will discuss more detail around property loans at Funding Circle.

Loan Servicing

Andrew Jackson, Head of Collections and Recoveries, gave us an overview of how his team have reduced the percentage of loans that are late in repaying, to a record low of 0.683%. You can find out more about the performance of our loans on our statistics page and read more about this team’s work here.

Regulation for the industry

As many of you may know, the peer-to-peer lending industry became formally authorised  and regulated by the FCA in April of this year, so Lucy Vernall, General Counsel, used this opportunity to highlight some key points on what regulation meant for us. They include the need for: minimum capital requirements, the segregation of client money and having a back-up loan service provider, should Funding Circle cease to exist. It’s worth noting that we have complied with all of the above since the day we launched, and we were founding members of the P2P Finance Association back in 2011.

 

We’ll post the second part of our investor evening shortly.

Your complete guide to a Funding Circle Christmas

It’s beginning to feel a lot like Christmas: The Pogues are back on the radio, we can finally dust off our winter woollies and we’ve waved goodbye to the chaos of Black Friday for another year. With 20 shopping days left before the big day we thought we’d give you some ideas of how you can make this Christmas extra special, by showing your support for small businesses across the country.

Thousands of investors have already done this by lending over £450 million to 6,000 small businesses through Funding Circle. But there’s more we can do to help British businesses. Instead of heading to the high street giants for your presents, stocking fillers and Christmas Day fayre, why not have a look down this list and see if you can get anything from a local Funding Circle borrower.

Gift ideas from our favourite borrowers this year

1. Add some sparkle: Jewellery

Small wrapped boxes look fabulous under the Christmas tree and diamonds will continue to be a Christmas favourite for your loved ones. Stirling Jewellers, a family-run business in Walsall, may have just the thing for you. As well as watches, bracelets and necklaces, they offer a bespoke design service so you can have a personalised piece made. And, as one of our oldest borrowers having been established in 1893, you’re sure to find something special. What could be better?

minty pegnuins

2. It wouldn’t be Christmas without: Chocolates

This year we’re loving James Chocolates, and especially their dark chocolate minty penguins. We ordered some for our November Investor Evening and not one box was left! Or, if you’re looking for something dairy and gluten free then you’re in luck too. Have a look at Moo Free for yummy chocolate treats without the dairy – you’ll struggle to taste the difference, and cows will be happier too. We also met them earlier this year.

3. Gizmos: Earphones

A recent report found that over 10.2 billion songs were streamed in the UK in the first 9 months of 2014, proving just how important music is to us. BassBuds, who borrowed through the Funding Circle marketplace in October, are high performance, luxury earphones and are available in a range of bright colours to get you and your friends noticed. They have the largest colour range in the world, and you can personalise them. Impressive.

4. Pampering presents: Bath and beauty

Smellies from Neal’s Yard Remedies are a perfect gift for all of the family. They have a number of gift boxes available starting from £22.50, and a range just for men too. Their organic products are all made down at their base in Dorset. 1,604 people lent to the business so they could refurbish their shop in Bath. If you get a chance, why not pop down to see the work they’ve done?

Gift ideas done, now let’s talk about preparations for Christmas Day.

5. Hosting a Christmas get together or a New Year’s party?

It may not be a traditional marquee season but that doesn’t mean they can’t be just as magical in  in winter. If you’re based in the Dorset, Wiltshire, Devon and Somerset, then take a look at Oakleaf Marquees. They have a range of sizes for all types of events so you’ll be sure to find something suitable. And, they have a ‘Christmas House extension,’ just in case you’ve invited a few too many people for the turkey. Good thinking guys!

6. Christmas Trees

To many, buying your Christmas tree is a ritual and signifies the start of the festive season. To avoid getting into the real vs. fake debate, we’ve got two suggestions of where you can buy your tree. If you’re up in the Argyll area of Scotland, have a look at the real fir trees which Walkers Home and Garden Centre has on offer. Or if you prefer longevity over tradition, then the online Internet Gardener stocks a range of artificial trees. You can pick up all of your lights and decorations from them too. Handy.

7. What are you having for your Christmas meal?

The big day has arrived – what will you be sitting down to? Turkey, ham and duck are some of the favourites, and you need look no further than Direct Meats who borrowed through the marketplace twice this year. Priding themselves on traceability and quality since 1995, you can either visit their outlet outside of Colchester or simply give them a call. Alternatively, visit Newton Farm Foods in Somerset for locally produced, high quality foods.

B60A6707

8. Fill your house with the aroma of mulled cider

Some of you may enjoy the waft of mulled wine and cider at Christmas markets. Thankfully, they’re very easy to make at home: you’ll need some cloves, an orange, sugar and some spices. For the mulled cider, you could try Ashridge Cider from Devon, our favourite was the Organic Vintage Cider. 473 people lent to them through Funding Circle in October. For wine, you’ll find everything you need: from a Champagne to a Rioja at Kent-based Durrant’s Fine Wine’s, although I wouldn’t recommend mulling the champagne…


So that’s the food, drink, decorations and gifts sorted. Now it’s time to relax and enjoy Christmas. Happy shopping!

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We’re helping businesses outside of the UK too

Since launching Funding Circle in the US last October, we’ve been able to help many more businesses access finance; with the total combined lending to small businesses across the UK and US, recently surpassing $700 million.

One of these small businesses is ExpressCare Pediatrics, a pediatrics centre located in South Carolina. Our team in San Francisco went to visit them, like we regularly do here in the UK, and we wanted to share their business story with you:

From providing vaccinations to new babies to helping a child recover from the flu, the team at ExpressCare Pediatrics care deeply about improving the health and wellness of children in Greenville, South Carolina.

To meet the increased demand for pediatric healthcare in the local community, owner Dr Tonya Knox-Frazier took out a business loan through Funding Circle to grow her team of doctors and open a children’s mental health centre.

In this small business spotlight video, you’ll meet Dr Knox-Frazier and the rest of the ExpressCare team and learn how their Funding Circle business loan helped not only her business, but also the patients she serves.

We hope you enjoy it!

When Kevin met Mike from Moo Free

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Moo Free Chocolates is a dairy-free chocolate manufacturer based in Reading. They have been selling their delicious chocolate across the UK and overseas for the past 4 years, with phenomenal success having won a number of awards in the ‘free from’ category.

Kevin has been lending to hundreds of British businesses through Funding Circle for 2 years. Moo Free was one of them.

Last month we took Kevin to meet Mike Jessop, co-founder of Moo Free Chocolates, so Kevin could see how his money has directly helped this business grow.

In this short video you’ll find out first-hand why Kevin chose Moo Free to lend to, what helps him make his lending decisions and what aspects of Funding Circle they like. Kevin not only lends to businesses himself, but also through his company.

If you’re interested in becoming an investor like Kevin, it should only take a few minutes to setup your account and you can explore how it works for free. Remember, by lending to businesses your capital is at risk.

If, like Mike, your business is looking for funds to grow, or you simply need working capital, you can apply online at a time that suits you and we’ll get back to you within 2 working days.

 

Your 5 minutes with… the Business Development Team

Following our last couple of interviews where we spent some time with the credit analytics and credit assessment teams, we’re now with the Funding Circle Business Development team, headed up by Laura McMullen; Business Development Director.

The Business Development team primarily focuses on building relationships with introducers, such as accountants, business advisors and finance brokers, who are closely connected to small businesses in the UK. By offering a fast and professional service to them, they’re happy to introduce their best clients to us, helping to bring more lending opportunities to the marketplace. Our fast turnaround times for assessing applications set us apart from other lenders, ensuring we attract the very best businesses.

Day-to-day activities include:

Building and retaining relationships with our introducer base, which could mean anything from meeting them face to face, to speaking to them on the phone, to exchanging emails and helping them submit business applications to us. I’ve been told that no day is the same, as every introducer will have clients within different sectors with different needs.

Hi everyone! Wow you’re a big team. How many of you are there?

Laura M: There’s currently 9 of us, and we all look after a number of Funding Circle introducers. We have James L, Tom, Laura K, Josh, Sandeep, Jeremy, James G and Derek.

BDM team pic

Can you tell me more about the people who typically introduce businesses to us?

Tom S: We see a whole range of people acting as introducers for Funding Circle; they could be anyone from financial brokers, to business consultants to accountants. After signing up for an introducer account on the website, we’ll arrange a call with them to find out more about the types of businesses they work with. Then they can get going and start using our system to help their business clients get funded through our platform.

What’s your goal?

Laura: We are working to make Funding Circle loans a key element of every introducer’s daily tool kit; we want to help them help even more of their business clients.

Tom: And from the investors’ point of view, we want to help bring different types of businesses to the marketplace so they can lend across lots of various industries, helping to diversify their lending.

Laura K: It’s also about providing introducers with a first rate service and giving them any support they need. If we do a good job and they trust us, we can be confident that they’ll bring quality businesses to us time and again.

Jeremy: We make sure that every introducer receives an excellent service. All introducers know they have a single point of contact; their Funding Circle manager, which I think for people who are used to dealing with multiple people at banks, is a big win.

Can you explain why what you do is important for our customers?

Derek: We fill a very valuable gap in the SME lending market, which is good for both the introducer and the business involved. We can offer a source of funding at a competitive rate that businesses may not previously have had access to. More than £370 million has been lent to businesses since 2010, which I think proves that.

James L: Yes exactly; the alternative for introducers would typically be getting a deal through a High Street bank. A lot of people I’ve spoken to have described the bank process as incredibly long-winded. Our process is so much simpler, so once introducers know they can help their clients quickly through Funding Circle, it’s a big win.

Laura K: Having relationships with these introducers also benefits investors, as a lot of the time they will have carried out their own due diligence on the business, before submitting any cases to us. They really do provide added value to loans that come onto the marketplace

So you mentioned that introducers may typically have approached a bank first to help their client. What sets us apart from them?

Josh: Every business advisor or introducer I’ve spoken to is always pleasantly surprised at the level of service we provide to them; especially how fast and simple the process is.

Sandeep: As Tom said earlier, some introducers may not be used to putting deals through to lenders. It’s really encouraging speaking to these people, and hearing how easy they find the system to use.

James L: Exactly, that’s the feedback I hear a lot. Introducers are not going to be specialist peer-to-peer finance brokers, so it’s important we educate them about peer-to-peer lending and its benefits. It’s a big part of what we do. The breadth of our loan products make it easy for us to be in a position to help a lot of their regular customers, ultimately leading to them earning more commission.  

I see, so education is one of the most important roles of your job. How do you it?

Laura M: It really depends on the person, but their Funding Circle account manager is their first port of call. It could be anything from sending an initial letter or information pack, to emailing them or having a phone call. We also run seminars all over the country for introducers, which we know really helps them understand our offering.

Tom: Education is an ongoing process, so for example when we launch something new, we’ll need to speak to the introducers and explain what’s changed. A lot of the time it will be for new products we’re launching which is great, and we take on their feedback which helps shape products going forward.

Can you talk about any products in particular?

James L: Yes, we’ve been reviewing our asset finance offering, and introducers have been invaluable in giving insights into how we can make it better. We’ll be announcing further details of asset finance improvements soon.

Great, I look forward to it! Let’s move on to hear more about you all. When did you all join Funding Circle?

Laura M: I’ve worked in finance and marketing for the past 7 years and I joined Funding Circle at the start of 2012. A lot of new faces have joined since then!

Jeremy: I joined in May this year and I have a banking and leasing background. Obviously that helps, but in terms of how the companies operate, they could not be more far apart. People actually want to speak to you here which makes the job so much more enjoyable!

Josh: I worked in recruitment before, so it’s sort of similar, as I’m still speaking to people a lot. I wanted to work at a startup and every day I find myself doing things that don’t necessarily fit my job spec. But, that’s a good thing, you’re able to learn from so many different people and everyone here is so positive!

James G: I also joined in May and actually came from another peer-to-peer platform. Funding Circle is a lot further down the road though, and you really get the sense that the focus for Funding Circle is to stay for the long term; the proof is in all of the investment the company has attracted. The culture is also fabulous, people have a good time at work which is so different to other working environments!

James L: I joined in October 2012 and was number 40 in terms of employees. Before Funding Circle, I had been working with finance brokers for 8 years, and always with bank lenders. I was initially nervous about changing jobs, but was excited working with a different proposition, and thought (and still think!) there would be a possibility of Funding Circle as a lending marketplace to really change the finance landscape.

Derek: My background is asset finance, and Funding Circle is very different. Asset finance is a mature market in so many ways, and is very set in what it does. If 3% growth was achieved year-on-year, that is considered a success, whereas here we are tripling every year. Sometimes you need to take a chance on something that is still at the early stages of its journey. More importantly, I wanted to improve my Ping Pong….!

I’m not surprised. Having won Ping Pong Fight Club 2 years in a row I’d say you have a good chance of brushing up your skills here.

Let’s finish up with a few questions about you. What’s keeping you all occupied outside of work?

Derek: Cycling, rugby, cricket and socialising. I cycle around 150 miles a week with a cycling club.

Josh: I love running and training for triathlons. I probably run about 10-20 miles every weekend. I really enjoy playing sport, especially rugby.

Jeremy: Unlike these two I don’t run or cycle miles every weekend! I like football, sports, spending time with my family, gardening etc..

Laura K: I recently bought a house and just got a dog so they keep me pretty occupied!

Sandeep: I’m more of a cat person.

Haha, OK. And you two?

Laura: I’m going to a lot of hen dos at the moment; weekends away with friends are always good fun.

James L: I really enjoy sailing, and organising social events within Funding Circle..

Yes James, you’d be ‘Social Sec’ if we had one. When’s the next Breakfast Club? Thanks for your time everyone!

How can you become an introducer at Funding Circle?

It couldn’t be easier, you’ll just need to go onto the intermediaries section of our website and click join or send us an email. We have a range of information packs available to download and we’ll be in touch soon after.

 

Let us know what team you’d like to meet next!

 

Shaving Roger Federer and other eye-catching artwork from a Funding Circle business

gillete

This month we travelled to Birmingham to meet Kristian Jeffrey, founder of Street Advertising Services, who shared his business story with us.

Street Advertising Services creates innovative advertising campaigns for brands and agencies, by using vibrant art and technology. Their work is designed to grab people’s attention, and judging by some of the artwork in this video, it’s not hard to see why.

One of the most memorable campaigns they’ve been responsible for was for the ‘World’s Biggest Shave’ for Gillette in 2011; part of which is shown in this short video. Kristian also explains how he set up his business and the sacrifices that were made when doing so.

In June 2014, Kristian took out a £40,00 business loan so they could employ more people and move to new offices. More than 500 people lent to Street Advertising Services through peer-to-peer lender Funding Circle.

If you’re interested in taking out a business loan in the future, you can find out more details here.

 

One year on: did you lend to this manufacturer?

Last month we visited David Potter, Director of Ambic, who is based in County Durham and borrowed £100,000 in July 2013.

Ambic is a long-established UK manufacturer and their primary focus is making and fitting educational furniture. They supply schools, universities and offices in the North East of England and pride themselves on the quality of their furniture; and the experience their staff bring to the field.

In this short video you’ll meet David, who set the business up 30 years ago. You can find out more about his manufacturing business and how his Funding Circle loan helped him with working capital over the busy summer months.

Ambic borrowed £100,000 from 1,277 investors through Funding Circle in July 2013.

If, like David, you’re interested in taking out a working capital loan for your business, you can get started on the application here.

Digging into the data – Collections & Recoveries

At Funding Circle we are committed to being a transparent business and we want to share more of our information with you around lending and borrowing activity.

As part of this commitment we are launching a series of monthly blog posts looking at the data behind Funding Circle. The series launches today and this first post examines the decline in late payments by businesses and the increase in the amount of money recovered for investors when they experience a bad debt.

Understanding why bad debts occur

Lending to businesses can deliver attractive returns to investors while helping established British businesses to access the finance they need to grow.

However from time-to-time some businesses will be unable to fully repay their loans. This is often due to an unexpected change in their circumstances; sometimes businesses are themselves the recipient of a late payment from one of their customers, causing cash flow problems. At other times another financial provider, like a bank, may withdraw their support suddenly. Often these are only temporary setbacks for a business, but in some cases it can have a more significant impact, leading to a business failing to repay their loan on time.

When businesses are late repaying their loan at Funding Circle our in-house collections and recoveries team work closely with the business affected to deliver the best possible results for everyone. One of our core principles of collections and recovery is ‘survival for revival’. A business that ceases to trade or is declared bankrupt without any recovery for investors is never a positive outcome.

Since we brought all of our collections and recoveries processes in-house in February 2014, we have seen significant improvements in the recovery rate for investors and a reduction in the number of businesses being late with a monthly payment. What this means to investors is that more businesses are paying back on time and when an instance does occur where a business ceases to trade, we are recovering more money for investors.

Let’s take a look at some of the key numbers:

Bringing down late payments

Firstly the number of businesses that are late with their monthly repayments has dropped since February from ~1.5% to less than 1%. The lowest this has reached is 0.80% was on 31 July 2014.

Decline in % of late payments since launch of FC in-house collections and recoveries teamDecrease in late rate - August 2014

Bringing down the rate of late payments was not achieved by simply defaulting more loans. This short term gain may look good initially, but the overall recovery rate would go down with each new default.

Instead, the decline in late payments is a result of building industry leading policies for managing businesses in distress. These policies involve working closely with borrowers as soon as they experience trouble – which helps to reduce the frequency of late payments, and puts us in a better position should the business ultimately cease to trade.

Raising recoveries for investors

As a result of this work, we expect recoveries across all loans defaulted up to 30 June 2014, to recover a minimum of 34p in the pound. Based on more recent loans (between 1 January 2014 – 30 June 2014) we anticipate the recovery rate to be 40p in the pound.

To give some context to these numbers, independent research indicates that traditional lenders would expect to receive between 28p-42p recovery on a secured business loan once a business enters administration, and 1p-3p. on unsecured business loans (without a personal guarantee).

Increase in recovery rate - August 2014

What is particularly encouraging about these figures is that we believe these estimates could potentially be higher. For example we have not included estimated recoveries on bankruptcies, and any loans currently in dispute before the courts or otherwise in negotiation for a payment plan.

What this means for investors

We are committed at Funding Circle to having the best collections and recoveries process in the industry – ensuring investors feel confident in lending to businesses. We know there is still lots more to do and we are constantly looking to recover as much money as possible, and further improve our communications.

We hope you found this post useful. We’ll be talking about this in more detail on our forum – please join us there. Our next data post will appear in September.

The Funding Circle team

Time to take a peer-to-peer loan?

The news today that small businesses are still struggling to access finance via traditional means, despite the more positive economic outlook, should comes as no real surprise for anyone who has been following business lending figures over the last few years. There has only really been one trend when it comes to high bank lending figures, and that has unfortunately been downwards.

The figures released by the British Bankers Association today show that borrowing by non-financial companies from high street banks declined in the year to June by £12.7 billion. Whilst it’s heartening to see that there was a small percentage increase in lending to small businesses in the wholesale and retail, accommodation and food, and real estate sectors, the percentage change remained below zero. Where we had previously seen some improvement in the manufacturing industry, with this being the only sector benefiting from positive increases in lending since October last year, this fell in June from ~10% to ~4%.

BBA lending stats June 2014

In comparison, business can typically access finance directly from investors via marketplaces like Funding Circle within two weeks. The application process is entirely online and can take as little as twenty minutes, and the credit assessment team will typically have a decision for you within 48 hours. On average it can take up to 15 – 20 weeks to hear from a bank – by which time the season may have passed, or the stock you needed to buy is no longer necessary as you weren’t able to take an important contract.

Today we’re publishing an infographic which shows just how fast a peer-to-peer loan can be for small businesses looking to grow and expand. If you have any questions, then just get in touch. Otherwise please feel free to share to help raise awareness of the choice that business owners now have when they are looking for finance.

If you’re a small business owner looking for finance, then why not put an application in now? Apply here.

Infographic final

Assessing more businesses on a case by case basis

Last month we revisited how we assess the types of security required for business loans, and removed the £150k threshold for loans without asset security. As mentioned, this will give our credit team more flexibility to assess the security required on a case by case basis.

As part of our ongoing work to improve and innovate the service we provide to both borrowers and investors, we will also start to review loan applications where the business has a turnover between £50k and £100k.

Previously we have considered loans for businesses who have around £100k turnover. However, as the marketplace grows, we are seeing an increasing number of businesses with a lower turnover and a high profit margin, that would pass our affordability check and our credit assessment.

These kinds of businesses are typically service companies, such as accountants or consultants, who have previously not been able to borrow through Funding Circle due to their lower turnover figure.

It’s important to note that we will always assess a business’s ability to repay a loan, and only list those that pass our credit assessment. Having the flexibility to consider businesses with a lower turnover will allow us to look at companies who have performed consistently well.

An example

Company A has been trading for 6 years, consistently turning over £60k with a profit of £25k.

Company B has 2 years filed accounts. The first shows a turnover of £6k with a loss of £100k, and the second year shows a turnover of £51k and a profit of £2k.

Company A is much more likely to be approved than Company B.

If you have any questions about this, please visit our FAQs or join us on our forum where we will be happy to discuss this in more detail.

Watch the investor evening video

On 29th May we held our first investor evening, where we had the pleasure of meeting about 30 of you in person. It was a great evening, with lots of interesting debate and helpful feedback. We hope those that attended agree, and many thanks to you for giving up your time to come and say hello.

We appreciate that not everyone is able to travel to London, so we hope you enjoy this short video! For a longer write up, check out what was discussed with the credit assessment and analytics teams here, the tech, product and collections teams here, and the co-founders here.

Watch the video:

Investor evening part 3: co-founder Q&A

Following on from part 1 and part 2 of our investor evening write up, we take a look at the points raised during the co-founder Q&A.

Q&A with Funding Circle co-founders

A lot of ground was covered with Samir and James, two of our co-founders, about the future of Funding Circle. Crucially, as we come towards the end of the whole loans trial, we discussed the need for a diverse mix of investors in order to create sustainable marketplace for the long term. The ambition for Funding Circle is to become like the London Stock Exchange for small business, where any investor, be they small or large, can lend to small British businesses.

James

This doesn’t mean our individual investors will become less important to us over time. If we look to the US market, regulation of the industry currently means we have more institutional investors but over time, we will work to ensure more individuals can lend. And vice versa in the UK market. Having this diversity will allow us to help thousands more businesses access finance, whilst ensuring investors continue to earn good returns.

Samir

Other key things to come out of the Q&A included:

Q: When will peer-to-peer lending be included within ISAs?

A: This was announced in the Budget earlier this year and consultation with Treasury is ongoing. We’re part of those conversations about exactly how it will work and when, and will update you as soon as we know more detail. In the meantime though, we expect the process to take about a year.

Q: The secondary market was less liquid at times earlier this year? Why was this and could we have more data on the performance of secondary market sales?

A: Just like any exchange, both the primary and secondary markets rely on supply and demand, and as we grow, we will need to ensure that one does not vastly outweigh the other at any one time. Record numbers of businesses came to Funding Circle at the beginning of the year and we saw 100+ loan requests listed a week, which led to a slow down for people looking to sell their loan parts. This has since improved and we will work hard to find a balance between the two. The aim is for both markets to be very liquid, which is why a diverse mix of investors – both individual and organisations – will be increasingly important, as business demand grows. We will also provide more data on secondary market fluctuations in the next couple of months.

Q: What does regulation mean for investors?

A: We actively campaigned for regulation for a number of years as we believe that as the industry grows, consumers must be protected. Specifically regulation means that peer-to-peer lending platforms will be required to have arrangements in place to continue to return available funds and administer existing loans in the event that the platform fails. All platforms will be required to hold capital reserves (extra cash) to help mitigate any business and financial risks, and every platform must have a complaints procedure in place (you’ll find ours in the FAQs).

The regulator has also issued guidelines on the information that a peer-to-peer lending platform should provide to investors. These include information on the average returns (after fees and bad debt but before tax) from the last few years, expected bad debt rates going forward, and information on whether a loan is secured, and if so, what form the security takes.

As part of our membership of the Peer-to-Peer Finance Association we already adhered many of these requirements and welcomed formal regulation.

Thank you!

We hope this has a useful overview of what was a very interactive and engaging session. We really enjoyed meeting more of you in person and found your feedback very useful. If you’ve got any further questions, then don’t hesitate to get in touch or join us on the forum, and we look forward to doing it again soon.

Meet the wider teams!

If you missed some of team interviews, then check out credit assessment, credit analytics and collections & recoveries. Tech and product interviews coming soon.

Investor evening part 2: collections and tech

Following on from part one of our investor evening write up, part two looks at themes discussed with both the collections & recoveries, and tech & product teams.

Collections & recoveries

Next up, Andrew Jackson, our Head of Collections & Recoveries, outlined the changes we’ve made to our processes since he joined the Funding Circle team about a year ago. Since then we’ve brought our entire debt collection and recoveries process in-house, which has allowed us to streamline our processes. This includes re-writing our documentation to be more effective,  and it also means that we’re not held back by the policies of a third party provider – thereby allowing us to act swiftly, robustly and within timescales that we consider fair.

AJ

Overall though, bringing everything in-house means we have a committed team of four professional working to deliver results for investors. This care and commitment is far more than any outsourced agency would provide. We know this is your money and we care very much.

By bringing debt collection in-house has led to our our ‘late rate’ recently reaching an all time low of 0.83% of our total living loan book – something we’re really proud of and will work hard to maintain and improve upon.

Key things to come out of the Q&A included:

Q: How do you strike the balance between recovering a debt and ensuring businesses are not asset stripped unnecessarily?

A: There is a huge trust element in the recoveries process. When a company director initially realises that they are unable to repay the loan, the first response is often fear. By turning this fear into trust, we improve the chances of Funding Circle investors being paid in full. Regular communication builds trust, and with transparency and responsiveness we can find fair and affordable solutions. We want to see as many businesses succeed as possible, because a successful business will deliver a full recovery.

Q: Do investors pay for expenses incurred during recovery?

A: At the moment the expenses and costs of court proceedings are not deducted from repayments by borrowers – they come out of the 1% servicing fee. There is currently a discretionary 15% administration fee for borrowers on late payments which can be used to offset the costs of court proceedings (if necessary). One expense that is borne by investors is the 16% fee which our former outsourced debt collectors used to charge on all recoveries. Clearly now that this is in-house those fees do not apply to most recoveries, but for historic cases those fees are still borne by the investors.

Tech & product

Steve, our Product Director, began by thanking all of you for your feedback via the surveys we regularly send out and the user experience sessions we run. Priorities you highlighted include: ensuring a good rate of return; managing default risk and improving recovery rate; and making the site easier to use.

Steve

In response to this feedback, we have extended the types of loans we offer to give investors more lending opportunities across various sectors such as property, to allow for well-diversified lending portfolios. The tech and product teams have also spent a lot of resource on creating data systems to support our credit models, new underwriting systems, and systems to bring recoveries in-house.

Andy, our Chief Technology Officer, discussed how we split our developer time between working on new functions and systems and cleaning up the site to make it easier to work on and more reliable by replacing old legacy code. We’re also in the process of introducing newer, faster servers which will improve site speed and responsiveness.

Andy

Key things to come out of the Q&A included:

Q: What are you doing about the security of the site and our accounts?

A: We are also going to be rolling out further security around investor fund transfers, including the addition of nominated bank accounts to receive transferred funds. We make use of two external agencies to undertake frequent site penetration testing, and to review and work with us on making sure that the code used is safe and secure. Further to this, we have an internal technology security team who work on maintaining and implementing code updates, as well as technology infrastructure security hardening.

Q: Is it possible to have access to more data around the performance of loans and how quick it is to sell loans?

A: We want to be the most transparent financial services company out there, and will always look to provide investors with as much data and transparency possible. As one example of this we have recently launched a new statistics page. Take a look here and let us know what you think.

Look out for…

tomorrow’s post which will include key points raised during the co-founder Q&A! As always, please get in touch with any comments or feedback.

A pleasure to meet you!

2014 has already seen a number of new developments at Funding Circle, including the introduction of regulation, the announcement of additional funding by the Government-backed British Business Bank and the start of our tailored property loans for businesses. With the number of investors fast approaching 30,000 we wanted to host an investor evening to meet more of you in person, and hear first-hand about your experience of investing through Funding Circle.

Last Thursday we had the pleasure of meeting about 30 of you at our first event for investors. It proved to be a great forum for debate and feedback, with many interesting and useful points raised – we hope those that attended agree, and many thanks to you for giving up your time to come and say hello.

We appreciate that not everyone is able to travel to London, so we filmed the event and will be publishing a video shortly. In the meantime though, we wanted to write up some of the key themes discussed in a three part blog series. This first post will take a look at some of the key points raised during the credit assessment and analytics session.

Credit assessment & analytics

Rahul, our Head of Credit Analytics, and Ari, our Head of Underwriting, kicked things off with a discussion on our credit assessment process and the risk models we build to help us determine which businesses to list on the marketplace.

Rahul

We discussed how these models ensure we remain within our estimated loss rate and why we’re constantly improving them so that only the most creditworthy businesses make it through to the credit assessment team. We also covered off our five-stage credit assessment process, and why ‘big data’ analytics, combined with a personal review of every application delivers superior credit performance.

Ari

Key things to come out of the Q&A included:

Q: How many pairs of eyes look at a single loan application?

A: Businesses go through a five stage credit assessment process at Funding Circle. Two of these are automated; the first is a credit model we have built and continue to improve following data from past performance of loans, and the fourth is a model which looks at whether the business meets the criteria for a Funding Circle loan. We manually assess stages 2, 3 and 5, and the sales, underwriting assistants, and underwriting teams respectively all work incredibly closely together to ensure that information is shared and assessed at each stage.

Q: Are you prepared for another economic downturn?

A: The answer to this is two fold. In terms of listing new loans on the marketplace, our risk bands are calibrated to target the expected annual loss rates that we publish on the site and this would not change in the event of a downturn. Loans that might have previously been listed as A+ would simply be listed as a B, for example, and loans that might have been listed as C- would be rejected.

In terms of our existing loan book, we take three factors into account when calculating the expected annual loss rate. The first is whether or not the business is expected to default. The second is the time at which the business defaults; for example a business which defaults after 1 repayment compared to a business who is unable to repay after 50 of 60 repayments will owe considerably more. The third factor is how much we expect to recover following the default. For both the second and third factors, we have taken a significant downturn into account and calculated the loss rate using stressed estimates.

Next week…

…we’ll be posting the second and third part of this series which will include key points discussed with collections & recoveries, and tech & product, as well as a Q&A with the co-founders.