funding-circle-review

Funding Circle Review

** Funding Circle review updated August 11th, 2017 **

Would I recommend dipping your toes in the Funding Circle peer to peer lending waters? I started investing in early 2015 and if you read my first Funding Circle review, I said 100% yes. But now it’s a resounding maybe. I posted my initial Funding Circle review in September 2015, exited in 2016 and then made another investment in June 2017 to try out the autobid feature. Read on for my updated Funding Circle review.

My Aug 2017 Allocation: Increased
My annual rate of return: 9.5%
Est. Annual Returns:Up to 21%
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, 0.25% exit fee to sell loans
Min Investment:£20 per loan
Avg. Lender Portfolio Size:£8,000
Time to Become Invested:Fast
Time Needed Managing:
Zero (autoinvest), high (manual investing)
Lending Agreements With:Borrowers
FCA Regulation:Interim
Cashback Offer:
£50 when you invest £2,000

Sign UpContact me for cashback offer link

* 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
  • Transparent statistics
  • Secured property loans
  • Funded £2.5bn+ in loans
  • Received £80m in support from the government owned British Business Bank
  • Secondary market for lenders to buy and sell loans
  • Company has modern slavery statement
Cons
  • Most loans are unsecured
  • Interest return rates not the best considering most loans are unsecured
  • Time-consuming manual investing needed to achieve best rates
  • 1% fee on loan repayments and 0.25% fee on secondary market sales
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 really liked the platform as I considered the interest rates worth the risk of lending to mainly unsecured businesses. But as time passed, the interest rates drastically dropped due to a changed from a bidding system to a fixed rate system. I was finding manual investing far too time-consuming for the rates offered and 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 autobid feature. I want to see what types of returns I can achieve using a hands-off strategy. I’ve only been invested for a short period of time so I will update this review as time passes and I have more to report.

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 (hopefully). Loans are rated on 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. I recommend you diversify across many loans to reduce risk.

Many people in the peer to peer lending world see Funding Circle as that school kid they liked to pick on but secretly wanted to be friends with. Funding Circle’s bad debt currently sits at 3.2% total with 98% of loans completely repaid since 2012 and that includes the shifty C, D & 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?

Receive £50 cashback when you invest £2,000. Please visit my Referral Request Page. You will receive an email with a sign-up link, usually within the hour. (Links like this enable me to fund the operation of this website so thanks in advance!)

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?

If you want to maximise returns, then manual investing is needed. Manual investing is time-consuming so it can take some time to become fully diversified as you will need to read company financials.

Investing is usually fast if you use autobid. I was able to be fully invested in two days.

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

Again if you manual invest and diversify, quite a bit of time is needed to pick out the best loans and then monitor them for performance. If you use autobid, your time spent will be zero.

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 or earlier.

What Are The Different Lender Products?

Funding Circle only offers one product which is business loans at varying risk levels and returns.

Is Auto-investing Available?

Yes. Funding Circle’s autobid feature allows hands-off investing and targets a 7.2% return rate. Autobid buys loans from both the primary and secondary resale markets. Autobid has some filters which allow setting the maximum % of your portfolio you want to lend to one business, which risk bands you want to include and bid offer rates for loans available on the resale market. Or you can use the basic setting that allows you to set the portfolio % allocation and not the risk bands.

Access autobid from your dashboard:

funding circle review

 

Here is the advanced settings screen:

funding circle review

How Are My Autobid Loans Allocated?

Autobid selects from any available loans that match your criteria. These can be newly issued loans or loans from the secondary market. In order to be properly diversified, you will need to invest £2,000 which means £20 chunks will be spread over 100 loans.

How Much Interest Does Funding Circle Pay Lenders?

Rates range from 6% to 18.1% depending on the risk level and the offer. You can also pick up some older loans on the secondary market (recommended to diversify your loan book), but make sure you view the repayment histories, financials and Q&A for potential red flags.

Using autobid, the target annual return is 7.2% investing across all risk bands.

Is Interest Paid Immediately Or When Loans Begin?

For primary market loans, interest begins accruing once the loan is filled. For secondary market loans, you will start accruing interest upon purchase since the loan has already been filled and drawn down.

When Is Interest Paid?

Interest payments are staggered throughout the month. As borrowers make payments, Funding Circle makes them available to you within one to two working days.

What Are The Fees?

Service Fee: 1% fee taken when borrower makes a loan payment
Secondary Market Fee: 0.25% fee when you sell loans to other investors

How Long Are The Loans?

Most loans are 6-60 months but some loans may redeem earlier.

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

Yes. You can both buy and sell on the secondary market. There is a 0.25% fee of the loan part amount when you sell.

Some loans carry premiums or discounts:

funding circle review

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)

2017: 2%
2013 to 2016: 2%
Lifetime expected: 3.2%

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

All loan contracts are between the investors 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 £2.5bn 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

Growth

When a peer to peer lending site 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 June the Funding Circle peer to peer lending loan book was approaching £1.5bn; yes that’s a billion in active loans! This means there are plenty of new loans to reinvest your payments in. 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 so that’s why it’s important to spread your money across many loans. But even with default risk, Funding Circle has low bad debt rates:

funding circle review

As of June 2017, out of £1.31bn in outstanding loans, £1.27bn were paid on time with about £30m in arrears between less than 30 days to more than 90 days.

As far as bad debt and recovery goes, Funding Circle has lost £48m of loans to bad debt while it has recovered £12.6m.

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 construction loans).

The Secondary MarketFunding Circle review

The secondary market where individuals buy and sell loans is liquid meaning you can put your money to work quickly. If you are a new Funding Circle lender manually investing, it’s possible to buy hundreds of loan parts in a matter of hours. When I was manual investing, I bought many A+ and A rated loans at interest rates of 10%+. The rates have dropped somewhat since the introduction of fixed interest rates but you can still find some deals. This secondary market system means you can put your money to work quickly rather than waiting on new loans to appear. I’ve sold plenty of loans on the secondary market. There are over 62,000 registered users so there’s plenty of activity. The secondary market has filters that allow you to set minimum interest rates and maximum premiums. My strategy was to look for A+ and A rated loans, with an interest rate of 9%+ and a premium of no more than 0.5%.

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.

Time Factor

Manual investing is needed if you really want to maximise returns. When manual investing, it’s best to review each business and only pick the best loans. Some businesses financial sheets throw red flags and those loans should be avoided. Just because Funding Circle offers a loan doesn’t mean it is a safe loan. Picking the right loans requires an immense amount of time and some expertise. I would rather be outside losing golf balls than delving into businesses financial statements.

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. Lenders’ also pay 0.25% fees on the secondary market sold loans parts. I understand Funding Circle needs to charge fees to be profitable but as you know, fees make me grumpy.


My Strategy

When I first started manual investing through Funding Circle in 2015, I bought lots of loan pieces on the secondary market and then used the bidding process to add new loans. I chose only A+ and A rated loans with a few E rated loans that I expected to default. I soon realized how time-consuming manual investing was for the returns I was making and decided to look elsewhere.

On my second go around with Funding Circle, I decided to test the autobid feature to see whether I could beat the 7.2% estimated return. I set the autobid not to invest more than 0.25% of my account into any single company to achieve maximum diversification. I will report back on my returns once some time has passed.

Funding Circle Review Conclusion

Having lent over £2.5bn, 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 if you manually invest in individual loans, but this can be time-consuming. Auto-investing eliminates the time commitment but will likely result in lower returns. Given Funding Circle’s trading history and the zero time commitment, I’m willing to take lower returns. 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.


Receive £50 cashback when you invest £2,000. Please visit my Referral Request Page. You will receive an email with a sign-up link, usually within the hour. (Links like this enable me to fund the operation of this website so thanks in advance!)

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. **