At Funding Circle, our aim is to allow you to earn an attractive, stable return by lending directly to a diversified portfolio of creditworthy businesses. To help you achieve this, we regularly update and improve our assessment processes. This also includes regularly reviewing the interest rates at which you lend to businesses.
Following our recent review, we wanted to let you know about some upcoming changes to the interest rates on our platform and our assessment process.
What are the new rates?
From Wednesday 30th August, we will begin to list small business loans in the UK at the gross interest rates below. These rates are shown before fees and bad debt. The projected annual return for the overall Funding Circle loanbook, after fees and bad debt, will be 6.7%*.
We made an important announcement today about some improvements we are making to how lending through Funding Circle will work from the 18th September, including introducing two new lending options. Taking into account these changes, the projected annual return for these lending options, after fees and bad debt, is estimated to be:
- Balanced – 7.5%
- Conservative – 4.8%
Your actual return may be higher or lower, and by lending to businesses your capital is at risk.
How have the rates changed?
You can see how the new rates compare to our current rates in the table below:
Why are the rates changing?
When reviewing rates we take a number of factors into account, including macroeconomic trends, the expected mix of risk bands of borrowers, expected bad debt rates and wider competition in the market, which continues to be increasingly competitive for lower risk businesses. The new rates will allow you to continue to lend to established, creditworthy small businesses while earning an attractive, stable return.
Will this affect the businesses you lend to?
Over the past seven years, 64,000 investors have lent £2.5 billion to more than 25,000 UK businesses. This has provided us with significant amounts of performance data to help improve our statistical credit models and means we can provide even more accurate pricing decisions to borrowers. With these improvements to our credit models, you can expect to see an adjustment in the mix of risk bands of borrowers in the coming months. This adjustment means the new expected bad debt rate for the overall Funding Circle loanbook will be 2.3% annually.
The improvements also mean we can make updates to our policy criteria. Our policy criteria give direction to business owners and help filter out businesses that have a low likelihood of being approved, so our credit assessment team only spend time on the right type of applications. Our latest policy criteria are:
- A minimum of two years trading history
- At least 1 year of filed or formally prepared accounts
- No County Court Judgments (CCJs) registered in the last 12 months, with no outstanding CCJs larger than £1000
Do you need to do anything?
The new rates will not affect any loan parts you currently hold, and will not apply to property development loans, which are priced individually.
If you use Autobid to lend to businesses, there is nothing you need to do as Autobid will continue to place bids on new loans at the new rates until 18th September, when the new lending options will be introduced.
As a reminder, these new rates will go live on Wednesday 30th August. If you have any questions about today’s news, please get in touch.
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. It is calculated by taking the distribution of loans, across both risk band and loan term, that we expect to be funded on the marketplace.
The return is then calculated by taking the gross interest rate of these loans, then deducting the fees and estimated bad debts that will occur in the future. The average return is weighted by loan amount, compounded and before tax. See the full calculation here.