Our CEO looks at the year ahead for Funding Circle

In 2012, Funding Circle and peer-to-peer lending transitioned from a fledgling industry into a real alternative for small businesses looking for investment and investors wanting a better return on their money. I believe 2013 will be the year that peer-to-peer lending becomes mainstream.

2012 was a great year for both our investors and small business borrowers on Funding Circle alike. Over £70million has now been lent by individuals in the UK directly to businesses, providing a viable alternative to bank finance for the first time.

With the reduction of auction times, small businesses can now get access to finance in less than a week versus sometimes months at the banks. And for investors, our secondary loan parts market saw a peak of £2.5 million worth of trades in a month, allowing people to sell their loans in an average of just 20 minutes. All of this means that investors get better returns and access to their money, businesses get efficient access to the funds they need to grow and the economy is able to expand. It is a win, win, win.

The announcement that the Government will for the first time lend public funds directly to businesses through the internet, and that the FSA will regulate peer-to-peer lending, represented a seminal moment for our industry. In 2013 we will continue to campaign hard for tax relief on loans to businesses – either through an extension of EIS or allowing business loans to be included in ISAs.

In 2013 we expect over £100million to be lent through the marketplace which would represent more than the previous two and a half years’ lending combined. We expect significantly more loans to be taken out to purchase assets following tax relief changes. Soon, it may not be uncommon to drive past cranes, coaches or tractors that you will have helped finance.

We also expect larger companies to start borrowing directly from people and their own customers through peer-to-peer platforms. You might not see John Lewis or Sainsbury’s borrowing just yet – but we would certainly hope a household name will emerge on your lending screens this year.

On the investors’ side, we understand you increasingly want to access Funding Circle in different ways, particularly through tablets and mobiles. We’re working on apps and a mobile-friendly website that we hope will significantly enhance your experience of lending through Funding Circle. You can also expect the look, feel and functionality of the site to change radically this year – from the secondary loan parts market, to summary pages and throughout the bidding process.

Even though we have experienced rapid growth since we launched, the opportunity for further growth remains massive. On the 19th December we hit a record of £8 million lent in a 30 day period. But over £7.6 billion is lent to small businesses every month by banks and other finance companies in the UK. That equates to just 0.1% market share. In addition, a recent survey by the Federation of Small Businesses found that less than 1% of businesses had even heard of peer-to-peer lending, let alone got around to considering it. As we all work hard to raise awareness of Funding Circle we expect more and more of this huge market to slip out of the control of banks, and an increasing number of British businesses to embrace peer-to-peer lending.

This can only be good for all of us. Small businesses are the lifeblood of the UK economy, making up 50% of GDP and 60% of the private sector workforce. So, not only are people earning a great return, but together we’re helping businesses to grow and to create jobs.

Thank you for your continued support. I hope that you will find your Funding Circle experience in 2013 a rewarding one, and that we can meet and exceed your expectations.

Samir Desai, CEO Funding Circle

– See more at: https://www.fundingcircle.com/about-us/our-blog/our-ceo-looks-at-the-year-ahead-for-funding-circle#sthash.56wq4WgK.dpuf


10 exciting developments to expect from Funding Circle in 2013


This year is already shaping up to be an exciting one for the Funding Circle community. With 2013 officially underway, we thought we’d share with you some of the more interesting developments that will affect your experience on the marketplace.


The £100 million milestone

A major milestone for the marketplace is quickly approaching: £100m in loans funded on Funding Circle. At the time of writing this, we are just about to cross the £70 million mark. Our expectation is that we will pass the £100 million milestone sometime in the first half of the year, can you predict when?


Government funds start being invested

We announced in December that the Government will be investing £20 million through Funding Circle. The funds should become available for investment in the next few months. We’ll keep you updated on when this happens.


Regulation of the Peer-to-Peer industry commences

Consultation on the Financial Services Bill will begin in January, which is the first step in the Peer-to-Peer finance industry becoming regulated. We welcome this move and the resultant regulation should see many benefits for organisations, borrowers and investors alike.


The Funding Circle community

We launched the new Funding Circle forum in December. The ambition, with your help, is for it to become a valuable resource for anyone investing or borrowing on Funding Circle or anyone thinking of doing so. We’ll also be growing our presence across the major social channels so you can engage with us on the platform of choice. We’re currently on FacebookTwitter and our own blog. Look out for our new presences on Google+ and Pinterest in the near future.


Secondary loan parts market

We are currently reworking the secondary market to make it much more useable and dynamic, with a lot of your suggestions coming to life in the new version. Based on some of the conversation on the forum, it appears that these will be welcome changes for the investor community.


Sole trader finance

We have always experienced a strong demand for the marketplace to offer loans to Sole Traders . We have been exploring the option for a few months now so look out for more news on this pretty soon.


Asset finance review

We are reviewing our asset finance product to create more opportunities on the marketplace for both borrowers and investors. The product will provide additional security for our investors and offer businesses more financing options.


More investment data

We’ll be exploring ways of presenting more Funding Circle data on the forum, giving you more insight into what is going on in the marketplace and hopefully helping you become a more successful investor on the Funding Circle marketplace.


Description and listing pages

We are currently working on creating much clearer and easier-to-use business description and auction listing pages. In the coming year, we’ll look to give a similar makeover to all parts of the site.


iPhone and iPad apps

One of the more exciting projects for the year will see us developing iPhone and iPad applications to make it easier to interact with the marketplace wherever you are. We will also be looking to make our site a lot friendlier to use on smartphones and tablets.

What else would you like to see from Funding Circle this year? Tell us in the comments

– See more at: https://www.fundingcircle.com/about-us/our-blog/10-exciting-developments-to-expect-from-funding-circle-in-2013#sthash.Xu3sxFBy.dpuf

The Government to announce plans to lend to small businesses through Funding Circle

Click the image to view the supporting infographic: The Rise of Peer-to-Peer Lending Infographic Rise of P2P lending

In this year’s Budget, the Chancellor announced that the Government was allocating £100 million for investment in ‘non-bank’ channels to help improve the flow of finance to growing businesses.

Today, the Government will announce their plans to join Funding Circle and lend £20 million to businesses directly through our marketplace. This is exciting news and represents the first time a UK Government has directly lent money to growing businesses in this way.

We understand this news represents a significant evolution for Funding Circle and we wanted to share with you how this will work, and the new lending opportunities we believe it will create for all investors.

Why is the Government doing this?

Despite many initiatives to stimulate bank lending over the last few years, net lending to businesses has continued to decline. Whilst bank lending to businesses has deteriorated, Funding Circle has rapidly grown. In two years since we launched, thousands of British people have helped to lend £65 million to more than 1,300 businesses. Last month investors lent £7m to British businesses.

The Government has now recognised the impact that non-bank channels, such as Funding Circle, can play to help ease the flow of finance to businesses.

How will it work?

The Government plans to lend £20 million to British businesses through Funding Circle over the next 12- 24 months. This is subject to parliamentary approval and agreement of legal terms and conditions. The current proposal is that:

  • The Government will lend on every loan that comes on to the marketplace and fund up to 20% of each loan at the average rate
  • We believe this is the clearest option and enables the Government to fulfil its wishes to participate in every loan whilst having no adverse effect on investors’ bidding experience
  • The remaining 80% of a loan will be funded by investors in the normal way, so your investment experience will remain exactly the same
  • Once the auction has closed and the average interest rate has been set for the remaining 80%, the Government will fund 20% at the same interest rate as the rest of the loan

How does it affect me?

We are committed to ensuring all investors continue to enjoy their investment experience and have more opportunities to lend. There is an estimated £7.3 billion worth of small business lending in the UK each month. With the Government’s investment, however, we believe we will be able to help more businesses obtain the finance they need to grow and create more investment opportunities for everyone at attractive rates.

When will the changes take place?

Subject to parliamentary approval and agreement of legal terms and conditions, the Government expects to start lending early in 2013 and we will notify everyone when this occurs. The marketplace will be clearly signposted so you are aware that 20% of every loan will be funded by the Government.

We think this is an exciting time for everyone involved with Funding Circle and represents an important milestone in the journey to redrawing the financial landscape for small business lending. We are looking forward to the beginning of 2013 and creating lots more opportunities for you to invest and support great British businesses.

Click here to read further information about how today’s announcement will work and join the discussion on our new forum. Our team will be on the forum all week and are happy to answer any questions you have.

The Funding Circle team

– See more at: https://www.fundingcircle.com/about-us/our-blog/the-government-to-announce-plans-to-lend-to-small-businesses-through-funding-circle#sthash.MBcScZED.dpuf


Making the most of your investment: Diversification

In the final post on our ‘making the most of your investment’ series, we’re looking at diversifying your investment.

At Funding Circle, you are in control of your money – you choose which businesses you want to lend to and how this is done. You also choose the level of risk you’re comfortable with for the return you’re looking for.

Part of lending through Funding Circle is choosing how you want to lend your money, and spreading amounts across lots of businesses to manage your risk. In the financial world, this is called diversification.

By diversifying and spreading your money to lots of different businesses, if any business is unable to fully repay its loan the impact on your overall return is reduced.

At Funding Circle, it’s easy to diversify. As an investor, there are two ways you can spread your money, whilst remaining in control and choosing the level of risk and return you’re comfortable with:

  1. Automatic lending. Our Autobid tool enables you to automatically place bids quickly and requires little management. You can set the maximum amount of money you want to be lent to any one business (from 0.5% of your total funds). So if you had £4,000 in your Funding Circle account, Autobid would lend a maximum of £20 to any one business.
  2. Hand-pick businesses. If you want to choose the businesses you lend to and focus on companies with characteristics you value, you can hand-pick the auctions you want to bid on. By choosing this option, you can also ask the business questions before deciding whether to bid.

If you are looking to rapidly lend your money out, you can buy loan parts directly from other investors. This takes place on our secondary market. To find out more information about this, click here.

Some people choose to diversify across hundreds of businesses to reduce their risk. By doing so any loss you experience will have a lower impact on your overall return. Every investor at Funding Circle who has lent no more than 1% of their funds to any business, and has been lending for at least 6 months, is currently earning a positive return.

Other investors like to spend more time reviewing and choosing individual businesses to lend to and will therefore lend to less businesses. This means any loss you experience will have a greater impact on your overall return, but the probability of experiencing a loss will generally decrease. Funding Circle allows you the control and transparency to choose the strategy that is most appropriate to you and delivers the maximum returns for the level of risk you are comfortable with.

We hope you have found the blog posts helpful over the last few weeks. If you have any questions please feel free to get in touch with us by leaving a comment below, or email contactus@fundingcircle.com.

The Funding Circle team

– See more at: https://www.fundingcircle.com/about-us/our-blog/making-the-most-of-your-investment-diversification#sthash.wQsbQuHB.dpuf

Making the most of your investment: Understanding your returns

One of the things people have told us they like about investing through Funding Circle is that it complements their other investments and offers attractive returns and less volatility than some other investment products, such as shares.

While shares can deliver attractive returns, they are volatile and won’t necessarily rise steadily over time. Facebook’s IPO and Google accidentally publishing its results early last week, which led to a 20% fall in its share price, are good examples. Funding Circle is different in that its return profile fluctuates less than shares.

FTSE 100 performance in the last 12 months


Illustrative Funding Circle performance over 12 months


As you can see from the graph above, the shape of your returns at Funding Circle will fall when you experience bad debts and increase again as other businesses pay you interest.

It’s important to remember that Funding Circle is not a savings account: it is a stable, risk-based investment. As an investor you should expect that some of the businesses you lend to will be unable to fully repay their loans – at Funding Circle we call this bad debt. Our current level can be found on our statistics page.

On the statistics page, we also provide estimated annualised bad debt levels so you can use these to calculate your expected net return. We estimate that you should expect a bad debt of 2.0% of your investment annually, although this will vary by the risk bands you lend to. These figures can help you calculate your estimated net return. In line with other risk-based investments, such as such as corporate bonds or gilts, we quote your rate as an average gross yield. The average gross yield is the return that you receive on your investment if you immediately reinvest all the monthly repayments (both interest and principal) you receive over the course of a year. This is before bad debt, our 1% annual fee and tax.

You can calculate your overall net return (before tax) by using this formula:


Unlike other peer-to-peer lending sites, where individuals lend to other individuals, relief from Capital Gains Tax is also available on loans which become irrecoverable at Funding Circle because you are lending to businesses. This is known as ’loss relief’ and even if you experience a bad debt, but do not use loss relief in the year it is incurred, it can be used in the future. You can read more information on our FAQshere.

If you do experience a bad debt, we will try to recover as much of your money as possible. We take security on more than 90% of all loans to ensure in the eventuality of a business not being able to fully repay their loan we have opportunities to recover the money. This includes personal guarantees, assets (such as coaches) and all-asset security (everything a business owns). Each recovery process will take a different amount of time to complete depending on each specific case. Whenever you experience a loss, we will communicate this to you and keep you updated on the recovery process within your account summary. You can read more information on our debt recovery processes here.

Next week, in our third post of the series, we’ll look at diversifying your investment.

The Funding Circle team

– See more at: https://www.fundingcircle.com/about-us/our-blog/making-the-most-of-your-investment-understanding-your-returns#sthash.2q2qqT37.dpuf

Making the most of your investment: Competitive bidding

As Funding Circle has grown over the last two years, we’ve seen thousands of people join, unlock their money and start lending to great British businesses. As we continue to grow we wanted to share with you some top tactics many members employ to make the most of lending at Funding Circle.

To do this, we will be publishing a series of short blog posts over the next three weeks. This week, we’re looking at competitive bidding, next week we’ll look at understanding returns and lastly we’ll discuss diversification.

Competitive bidding

As most of you will know, at Funding Circle people lend money to businesses via auctions. You bid the gross interest rate you want to earn and the amount you are happy to lend, and the lowest rate bids become part of the loan. So, your offer is successful depending on how competitive your bid is compared to other investors.

Popularity varies by loan request, but the number of bids placed can often increase significantly in the final few hours of an auction.

The graph below indicates how popular the final few hours of auctions can be. In this auction for £250,000, more than £1.1 million worth of bids were placed by investors with more than 70% of all winning bids taking place on the final day of the auction.

Percentage of loan funded by auction day – example loan, Sept 2012 %


Winning interest rate by day of auction – example loan, Sept 2012 %


If this has happened to you, a good way to manage this is to monitor your offer rates and check the interest rate you have offered is competitive and in line with the level of return you are looking for and the level of risk you are comfortable with. This will ensure you are successful as often as possible.

It’s also useful to remember that once a business loan is 100% funded, a business can choose to accept the loan early and approximately 40% of businesses choose this option. The majority will wait until the auction ends to see if the interest rate will fall. This means that if a business loan is 100% funded and still on the marketplace, you can place a bid at any point until the end of the auction. You do this by offering an interest rate lower than the maximum interest rate which you can see on the loan request page.

If you are unsure whether your bid has been successful, you can check the ‘My Bids’ summary page in your account. If you cannot see your bid and your available funds have increased, then your bid will have been knocked out of the auction. If you wish to re-bid check your new rates is sufficiently competitive, or if you’re using Autobid, lower the interest rate settings. We will be developing new tools to automatically let you know the state of your bids in the future.

We hope you found this post useful. We’d love to hear your feedback about what strategies you employ to ensure you maximise your return. Leave a comment below or get in touch at contactus@fundingcircle.com.

The Funding Circle team

– See more at: https://www.fundingcircle.com/about-us/our-blog/making-the-most-of-your-investment#sthash.SezxqtoB.dpuf