funding-circle-review

Funding Circle Review

** Funding Circle review updated October 10th, 2017 **

Big changes were implemented to Funding Circle’s lending model on September 18th, 2017. So do I still recommend dipping your toes in the Funding Circle peer to peer lending waters? Yes! Some lenders will dislike the changes but I will present a different opinion as to why I think the changes are positive. Read on for my updated Funding Circle review.

My September 2017 Allocation: Unchanged
My annual rate of return: 7.5%
Est. Annual Returns:Up to 7.5% (after fees)
Recent Return Rate Trend:⬇︎
My Risk Rating *:
Launched:2010
Early Exit:
Autoinvest:
Provision Fund:
ISA Available:
X
Loan Types:Business, property development
Loan Security:Business loans are unsecured. Development loans secured by property and land
Lender Fees:1% annual fee
Min Investment:£20 per loan / £100 initial deposit
Avg. Lender Portfolio Size:£8,000
Time to Become Invested:Fast
Time Needed Managing:
Zero
Lending Agreements With:Borrowers
FCA Regulation:Interim
Cashback Offer:
None
Sign Up:

* This opinion risk rating factors in types of loans offered, interest rates, platform history, default numbers and my own investing experience. My risk rating explained.

Funding Circle: What You Need To Know

Pros
  • Founded in 2010 / good track record, growth and trading history
  • Autobid for those wanting hand-off investing
  • New rules present a fairer system with zero time management
  • Transparent statistics
  • Secured property loans
  • Funded £2.7bn+ in loans
  • Received £80m in support from the government owned British Business Bank
  • Fee-free secondary market for lenders to sell loans
  • Company has modern slavery statement
Cons
  • Most loans are unsecured
  • Interest return rates not the best considering most loans are unsecured
  • 1% annual fee
  • New system will displease manual investors looking for higher returns
Equivalent Competitors

Assetz Capital, Funding Secure, Ablrate, Lending Crowd

Funding Circle Review (UK): My experiences so far….

When I initially began investing through Funding Circle in 2015, I was a little concerned about lending businesses using unsecured loans but I considered the interest rates worth the risk. But as time passed, the interest rates drastically dropped due to a change from a bidding system to a fixed rate system. I was finding manual investing far too time-consuming for the rates offered and I ultimately decided to exit the platform. In June 2017, curiosity once again got the better of me and I decided to give Funding Circle another try but this time, using the lower interest paying auto-bid feature. I wanted to see what types of returns I can achieve using a hands-off strategy. Now new changes have once again been announced and after considering the changes, I’m a supporter.

What Is A Funding Circle?

Funding Circle peer to peer lending loans are given to small British businesses and property developers. Lenders buy loan parts and receive monthly payments. Loans are rated by risk grades from A+ to E, and the interest rates are based on the grades. A+ loans pay the least interest while E loans pay the most. Most loans are unsecured (other than personal guarantees), except for certain property development loans, which are secured by real estate.

Funding Circle’s bad debt currently sits at 3.3% total with 98% of loans completely repaid since 2012 and that includes the riskier C, D and E loans. These numbers are pretty good considering the high amounts of unsecured loans Funding Circle offers.

How Can I Contact Funding Circle?

Web
UK Tel: 0800 048 8747

When Did Funding Circle Launch?

August 2010

Are They Regulated? 

Yes, by the UK Government’s Financial Conduct Authority under interim permission.

How Do I Sign Up?

You can sign up here. Currently, Funding Circle isn’t offering any cashback offers but please write Financial Thing inside the “how did you hear about us field”.

Who Can Open An Account?

Any UK resident or non-resident who owns a UK bank account and can pass the i.d. checks.

What’s the Signup Process Like?

Pretty easy. Just pass the security checks and provide any requested documentation.

How Much Time Will It Take To Become Invested?

There’s no definite answer to this since Funding Circle is removing the ability for lenders’ to manually invest in individual loans in favour of purely focusing on its auto-bid feature. If I had to hazard a guess, I imagine many manual investors will exit the company because of the reduced return rates meaning many loans will become available. I don’t think it will take too long to become auto-invested but only time will tell.

When I used auto-bid in June 2017, I was able to become fully invested in two days.

How Much Time Will I Need To Spend Managing My Investments?

Since auto-bid will now be the only option, you will spend zero time managing your investment.

What’s The Minimum Deposit / Investment?

Loans: £20 minimum
Deposit: £100 minimum using a debit card. No minimum for bank transfer

How Are Deposits Made?

You can instant deposit via debit card or use a bank transfer which takes up to three business days.

Does Funding Circle Offer an Innovative Finance ISA?

No, as they are awaiting FCA full authorisation so once this happens, the ISA will be opened. This should be completed by late 2017.

What Are The Different Lender Products?

Funding Circle now only offers two auto-bid products lending on businesses and property development loans. The two products are Balanced with an annual targeted return of 7.5% and Conservative with an annual targeted return of 4.8% after bad debts and fees. See below for more.

Is Auto-Investing Available?

Yes. Funding Circle’s new products will only feature two auto-bid options:

Balanced: Your money is deployed across all loan risk levels A+ through E which result in higher return rates but with higher defaults.

Conservative: Your money is deployed across what Funding Circle considers higher quality A+ and A loans. That should, in theory, result in very low default rate and a stable projected returns.

There will be no other settings on the auto-bid presenting an extremely simplified process. Just choose which product you want and off you go:

funding circle review

How Are My Autobid Loans Allocated?

Autobid will automatically diversify your funds across available loans. A maximum of 0.5% of your portfolio will go into a single loan resulting in a more stable return. New loan parts will be no larger than £100 each. For example, if an investor had a portfolio of £100,000, no more than £500 would be deployed into a single loan and that £500 would be spilt into £100 pieces.

How Much Interest Does Funding Circle Pay Lenders?

Target rates will be 7.5% p.a. for the Balanced product and 4.8% p.a. for the Conservative product. This return is after bad debts and fees but not before tax.

Is Interest Paid Immediately Or When Loans Begin?

Interest will be accrued once your money is deployed.

When Is Interest Paid?

Funding Circle hasn’t specified whether or not payments will continue to be staggered throughout the month, but I presume payments will continue to be paid throughout the month.

What Are The Fees?

Service Fee: 1% fee taken when borrower makes a loan payment

How Long Are The Loans?

Most loans are 5 to 60 months but some loans may redeem earlier.

Is There A Secondary Market To Buy, Sell And Exit Loans?

With the new changes, the secondary market will change. You decide how much of your portfolio you want to sell and Funding Circle will do the rest. Exiting will be free of charge which is a great benefit to lenders. It will be interesting to see how this works. There’s a possibility the secondary market will become extremely liquid and your account could be used as instant or short term. Premiums and discounts on secondary market loan parts will also be removed. I’m not a fan of secondary market premiums so I’m glad to see this removal.

What Types Of Securities Do Funding Circle Loan Against?

Most Funding Circle peer to peer lending loans are unsecured (other than personal guarantees) except for certain property development loans which are secured by property and or land.

What Are The Reported Loan Bad Debt Rates (By Loan Origination Date)

Approximately 3.3%

Am I Lending to the Funding Secure Platform or to the Borrower?

All loan contracts are between lenders and borrowers.

What Happens if Funding Circle Ceases Trading?

Firstly, let’s hope this never happens. But if it does, Funding Circle has its policy stated here. To summarize, your lending directly to businesses, not to Funding Circle, which is a good thing. If Funding Circle goes out of business, a third party administrator would be assigned to collect and disburse your loan payments. In reality, no one knows how this would play out and this is all part of the risk of peer to peer lending.

WHAT I LIKE ABOUT FUNDING CIRCLE:

Track Record & Growth

The riskiest part of peer to peer lending is the unknown due to company failure. Some so called financial “experts” have deemed peer to peer lending riskier than loaning cash to your Uncle Ricky for his latest Internet start-up venture. But I view peer to peer lending in a positive light, as long as you diversify and spread your money across multiple companies and loans. Funding Circle is one of the older dogs in the peer to peer lending kennel and has loaned over £2.7bn since 2010; quite an achievement. Funding Circle has also set up shop in the USA, The Netherlands, and Germany. This means the company has the financial backing to grow and become profitable.

Deposits, Payments & Withdrawals

Deposits are made via Debit card transfer and show instantly. Withdrawal payments take 2-3 business days. Since you’re smart and will be owning 100+ loan parts, you’ll receive interest and capital payments frequently. If a business is late making a payment, it will show on your summary screen:

Funding Circle review

The New Changes

Sometimes peer to peer companies make drastic changes, sometimes good, sometimes bad. Funding Circle recently announced they would be making some big changes which I imagine have been considered for some time and haven’t been taken lightly.

I’ve pondered the new changes and I will probably be one of the few supporters. Here’s a rundown:

  • No more manual investing in loans
  • Two auto-bid products, Balanced and Conservative
  • No more than 0.5% of your portfolio will be lent one business (£20 per loan min)
  • Loan parts will be no larger than £100 making them easy to resell
  • No more secondary market fees for reselling loan parts

The changes mean all lenders will be equal and there will be no more people snapping up the high-interest D and E loans in seconds and then using the secondary market to flip them for a profit. The changes mean fair returns for those who don’t take or have the time to research each business. Inability to correctly research businesses sometimes ended in lenders buying poorly performing loans that resulted in lower returns. The changes and usage of auto-bids mean instant diversification where lenders own small chunks of many loans. This is the same way companies like Landbay, Zopa etc. It means no more exit charges! (yay), possibly an instant access type account? And finally, the new system will mean new opportunities for the upcoming ISA, where high tax paying investors may be able to realise double-digit interest returns.

Manual investors and people who use automated systems to buy the highest interest rate D and E loans will be upset and will exit because their return rates will plummet. People like myself who don’t have access to higher rate loans because they sell in an instant will be happy that Funding Circle has presented a fairer system.

So yes, in theory, I’m happy for the new changes and am interested to see where this will take Funding Circle’s business.

Growth

When a peer to peer lending site struggles to increase its loan book, I see more red lights and flags than in Amsterdam. Funding Circle doesn’t have this problem. As of July 2017, the Funding Circle peer to peer lending loan book was approaching £1.4bn; yes that’s a billion £’s in active loans! This growth allows Funding Circle to make more money from fees. Yes, I know fees suck but this is how Funding Circle stays in business, and that’s a good thing for investors.

Low Bad Debt and Default Rates

Defaults are part of peer to peer lending but Funding Circle keeps its bad debts at reasonable levels. You can see all the statistics here.

As of July 2017, out of £1.38bn in outstanding loans, £1.35bn were paid on time with about £34m in arrears between less than 30 days to more than 90 days.

As far as bad debt and recovery goes, Funding Circle has lost £54m of loans to bad debt while it has recovered £14m.

All those numbers are very reasonable considering the loan book size.

Most Loans Amortize

This means you receive interest and principal payments monthly. Each principle payment you receive on a loan reduces the risk of default. The loans that are interest only are clearly marked (usually the property development loans).

The Secondary Market

With the new changes, the secondary market should now be more liquid. No more premiums and discounts and no more exit fees.

The Modern Slavery Statement

Funding Circle has a Modern Slavery Statement where it denounces slavery and human trafficking. Funny to see but a serious cause that I’m glad Funding Circle supports. Want to read the statement? Click here.

WHAT I DISLIKE ABOUT FUNDING CIRCLE:
Lower Interest Return Rates

Keeping in mind most loans are unsecured and that Funding Circle deducts 1% from each borrower repayment, return rates are on the low side. There are alternative companies to consider however none have the operating track record of Funding Circle. What you give up in returns, you receive back via a certain level of safety.

Most Loans are Unsecured

Loans other than property development loans are unsecured which means if a company defaults, the chance of money recovery could be lower. This is why it’s so important to diversify across many loans. Funding Circle recommends you don’t invest more than 1% of your total balance into any single company and that you hold at least 100 loans.

Higher Fees

Some peer to peer companies charge fees to borrowers rather than to lenders. Funding Circle charges fees and collects a 1% fee on all borrower repayments. This fee means that lenders receive 1% less in returns.


My Strategy

I stopped manual investing with Funding ZCircle in 2015 and recently reinvested using their auto-bid feature. Manual investing was simply too time-consuming. Now that Funding Circle is removing all manual investing, auto-investing will be the only strategy available. I will use the Balanced option targeting 7.5% p.a. I think the Conservative option pays too low returns and I’m not certain the A+ and A rated loans are much less risky than some of the B to E loans.

Funding Circle Review Conclusion

Having lent over £2.7bn, Funding Circle is a relative giant in the peer to peer funding world, plus it’s a well-funded company that has been growing year to year. Lender returns can still be attractive as manual investing will be eliminated so time management will be reduced to zero. A future ISA will help lenders to achieve better returns.

Given Funding Circle’s trading history and the new zero time commitment, I’m willing to take lower returns. It will be very interesting to see how the new changes filter through Funding Circle’s business but I still believe Funding Circle could be a part of your diversified peer to peer lending platform portfolio, but I recommend investing alongside other companies such as Assetz CapitalMoneything and Lendy, all which pay better returns and offer secured loans.

Thanks for reading my Funding Circle review.


You can sign up here. Currently, Funding Circle isn’t offering any cashback offers but please write Financial Thing inside the “how did you hear about us field”.

Disclaimers: I’m not paid to write this Funding Circle review nor am I employed by any of the companies I write about. In most cases, I have invested or continue to invest my own money through these companies. The sign-up links on this Funding Circle review and in this website are referral links. When you sign up for an account through my website, I receive a referral fee directly from the companies, at no cost to you. Your support enables me to continue to operate the Financial Thing website. You can read more about my referral links here.

** This Funding Circle review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this Funding Circle review are current opinions based on my own personal experiences. Peer to peer lending contains risk and your capital is at risk. Never invest more than you can afford to lose. **

 

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Laurence
I'm the author of Financial Thing and a regular peer to peer lender who was begrudgingly forced to figure out his financial life. Now I have a passion for helping others figure out what took me years to learn.