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 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: 5.5% to 6.5%
Conservative: 4.9% to 5.2%
You can see more information on how the projected return is calculated here.
Providing a clear view of how your account is performing
We have also recently updated your Summary page to make it easier to see how your portfolio is performing. Previously, we showed investors three different returns: gross yield, an annualised net return and an estimated fully diversified return. We have received feedback that showing three returns can be confusing, so to make this simpler you will now only see one return in your account, the annualised return.
The annualised return represents how your account is currently performing and is calculated after fees and bad debt. This links directly to your investment earnings and will help you to evaluate how your account has performed since you started lending through Funding Circle.
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. Your personal projected return 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.
The Funding Circle team