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Funding Circle

How Lending Works

Your top questions – answered

Updated: 12 August 2020

Our investor support team are on hand to help with any queries you have about your account, how lending works or Funding Circle in general. We spoke to the team to find out what were the most common questions you were asking. Read on below to find the answers to your top 5 questions.

1. Can I move money from a Classic to an ISA account?

Unfortunately you can’t transfer either loan parts or available funds from your Classic account to your ISA.

ISA regulations state that investors can only make cash subscriptions into an Innovative Finance ISA. Instead, you must first sell your loan parts to other investors, then withdraw the funds raised into your nominated UK bank account. You can then transfer the funds into your ISA account.

Likewise if you have available funds in your Classic account, you are unable to transfer directly to your ISA. Again, you will have to withdraw and transfer in from your bank account.

The same is true if you want to move funds from your ISA to your Classic account.

2. Which loan parts can I sell?

To ensure all investors are protected and treated fairly, we have specific rules and restrictions on which loans can be sold. Investors can’t sell loan parts that:

– Have had their risk band removed (for example when a CCJ has been registered against the business)
– Are late (currently behind on repayments) or are in default
– Have only one payment remaining

The first two restrictions are often temporary. If a business gets back on track with their repayments and there are no remaining issues, we can reinstate the risk band and the loan part can be sold.

As a result, investors can only sell loans that are in good health, which helps to protect the investors who buy them.

3. Why is my money not being lent out?

Our automatic lending tool is designed to help more than 70,000 investors lend their funds to businesses quickly and fairly. We have a dedicated team who monitor the balance between the supply of investor funds and demand from businesses. 

It’s important that the remaining available funds are allocated fairly, so all investors have the chance to lend their funds to businesses. To help achieve this, the lending tool is more likely to match investors who have a large proportion of their funds available.

It’s worth noting that the lending tool will typically start matching your available funds once they reach 0.5% of your portfolio, and you will usually have a small proportion of funds not lent at anytime. Lending will be slower at weekends as new loans are only listed within working hours, but you may still purchase loan parts that are being sold by other investors.

In addition, if you are lending through our Conservative lending option, it can take longer to lend all of your funds out to businesses as you are only lending to our A+ and A risk bands, rather than across all businesses.

4. Why do I get negative interest at the beginning of lending?

This is a common occurrence when investors first start lending and is not a cause for concern.

When lending through Funding Circle, you will typically lend the majority of your funds to businesses who are taking out a new loan. However, you will also use some of your funds to purchase loan parts that are being sold by other investors.

As loan parts are often sold mid-way between repayments, it’s important that both the seller and buyer of a loan part receive the interest owed for each day they hold it for.

As a result, when you buy a loan part, you’ll pay the seller the amount of interest owed to them since the business last made a repayment. This interest will be taken from your available funds, and may show as a negative amount on your account total if you are just starting to lend. When the business makes their next repayment, you’ll receive a full month’s worth of interest.

5. Can I split my funds between Conservative and Balanced?

Only one lending option can be applied to your account at a time, so funds cannot be lent out using both Conservative and Balanced options simultaneously.

However, you could lend out half your funds using one option, then switch to the other and lend out the rest. This would split your funds across the two options, although any repayments would then be lent according to your current lending option.

If you’d like to change your lending option, you can do so at any time via the “Lending settings” tab.

More information can be found in our investor guide. Remember, by lending to businesses your capital is at risk.

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