Funding Circle Review
** Funding Circle review updated February 6th, 2019 **
With operations in four countries, Funding Circle is one of the biggest peer to peer companies having lent out £5.6bn+ globally since its launch. Funding Circle offers an easy to use auto-invest product that offers fair returns for the risk involved. I have been lending through Funding Circle for quite some time but decided to reduce my investment due to the removal of default statistics. Read on for my updated Funding Circle review.
My January 2019 Investment: Unchanged
My annual rate of return: 6.3%
|Est. Annual Returns:||Up to 7% (after fees)
|Recent Return Rate Trend:||← →|
|My Risk Rating *:|
|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:||£10 per loan / £100 initial deposit|
|Avg. Lender Portfolio Size:||£8,000|
|Time to Become Invested:||Varies based on demand / supply|
|Time Needed Managing:||Zero|
|Lending Agreements With:||Borrowers|
|Cashback Offer:||Invest £2,000+ and receive a £50 Amazon gift card|
|Sign Up:||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.
How Do I Sign Up / Any Cashback Offers?
Sign up and lend £2,000 to receive a £50 Amazon gift card. (Read the terms and conditions on the signup page. When you open an account through my website, it helps me to continue to operate and offer new reviews.)
Funding Circle Review: What You Need To Know
- Founded in 2010 / good track record, growth and trading history
- Autobid for those wanting hand-off investing
- New rules present a fairer investing system with zero time management
- Secured property loans
- Funded £5.6bn+ in loans globally
- 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 🙂
- Most loans are unsecured
- Interest return rates not the best considering most loans are unsecured
- No default statistics and no loan book download
- Low recovery rates on bad debt
- High fees
- Some of my funds were stuck in unlent purgatory for several weeks
- Idle funds can lead to cash drag (returns lost to uninvested money)
- Auto-invest only products will displease manual investors looking for higher returns
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 was relatively happy for a while as returns were good. I became somewhat concerned by low bad debt recovery and when Funding Circle removed the ability for lenders to view default statistics and download the loan book, I reduced my investment.
What Is A Funding Circle?
Funding Circle peer to peer lending loans are given to small British businesses. 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.
How Can I Contact Funding Circle?
UK Tel: 0800 048 8747
When Did Funding Circle Launch?
Are They Regulated?
Yes, by the UK Government’s Financial Conduct Authority #722513 under full authorisation granted May 25th, 2017.
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?
I tested the market in January 2019 with a smaller amount of money and it took 2 business days to become fully invested. Demand and supply is really the only indicator.
How Much Time Will I Need To Spend Managing My Investments?
Since auto-bid is the only option, you will spend zero time managing your investment.
What’s The Minimum Deposit / Investment?
Loans: £10 minimum
Deposit: £100 minimum using a debit card. No minimum for bank transfer
How Are Deposits Made?
You can instantly deposit via debit card or use a bank transfer which takes one to three business days.
Does Funding Circle Offer an Innovative Finance ISA?
Yes there is an IFISA
What Are The Different Lender Products?
Funding Circle offers two auto-bid products lending on businesses and property development loans. The two products are Balanced with an annual targeted return of 6-7% and Conservative with an annual targeted return of 5-5.5% after bad debts and fees. See below for more information.
Is Auto-Investing Available?
Yes. Funding Circle offers 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 are no other settings on the auto-bid presenting an extremely simplified process. Just choose which product you want and off you go:
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 split into £100 pieces.
How Much Interest Does Funding Circle Pay Lenders?
Target advertised rates are 6-7% p.a. for the Balanced product and 5-5.5% p.a. for the Conservative product. This estimated return is after bad debts and fees but before tax.
Is Interest Paid Immediately Or When Loans Begin?
Interest will be accrued once your money is deployed.
When Is Interest Paid?
Interest payments are staggered throughout the month.
What Are The Fees?
1% Annual Service Fee. This fee is not 1% of your interest but rather 1% of the remaining loan balance on each loan. This fee is actually quite hefty and for me has been over 10% of interest received. See my Thumbs Down Section for more.
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?
Yes. You decide how much of your loan portfolio you want to sell and Funding Circle will do the rest. Exiting is free of charge which is a great benefit to lenders and there are no premiums and or discounts. I tested the resale market in December 2018 and was able to exit within five days. Exiting is all based upon supply and demand.
What Types Of Securities Do Funding Circle Loan Against?
Most Funding Circle peer to peer lending loans are unsecured (other than personal guarantees). In April 2017, Funding Circle discontinued offering property development loans choosing solely to focus on lending to small businesses with an average of nine years trading history and six employees.
What Are The Reported Loan Bad Debt Rates (By Loan Origination Date)
Funding Circle no longer publishes their defualt or bad debt statistics.
Am I Lending To Funding Circle Or Directly To Borrowers?
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.
THUMBS UP FOR FUNDING CIRCLE:
Track Record & Growth
The riskiest part of peer to peer lending is the unknown aftermath due to company failure. Some 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 billions of £’s globally 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:
Sometimes peer to peer companies make drastic changes, sometimes good, sometimes bad. Funding Circle announced they would be making some big changes in 2017.
I’ve pondered the 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 to 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 meant all lenders became equal and there are no more people manually 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 meant 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 meant instant diversification where lenders own small chunks of many loans. This is the same way companies like Landbay, Zopa etc.
The changes meant no more exit charges and an 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.
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. Between June 2017 and December 2018, the Funding Circle peer to peer lending loan book has grown from £1.4bn to over £2.8bn. 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 claims to keeps its bad debts at reasonable levels. Funding Circle no longer publishes its default and bad debt rates but as of August 2018, Funding Circle’s projected bad debt ranges between 2.5% and 3%. Sometimes projected bad debt predictions tend to be conservative.
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
I’ve been able to successfully sell loans within a few days. The secondary market is only as good as the demand for other investors looking to buy loans. The removal of resale fees, premiums and discounts appears to have resulted in a more liquid secondary market
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.
THUMBS DOWN FOR 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.
Some Of My Funds Were Stuck In Unlent Purgatory For Several Weeks
In May 2018, I noticed an increasing amount of unlent funds in my account. I scoured through my transaction statements and realised none of my funds had been lent out for several weeks. I placed a call to a very friendly Funding Circle customer service bloke who explained that increased lending demand due to the ISA introduction could be to blame. He also explained that lending priority is based up the percentage of unlent funds, so being that my account had 8.5% of unlent funds, he thought the lack of lending activity was unusual.
I never heard back from the customer service representative and my funds weren’t lent out until the end of July 2018. I still don’t have an explanation for this other than an over supply of lender funds.
While Funding Circle advertises their fees as only being 1%, this fee is 1% of the remaining loan balance on each loan. For example, let’s say a loan is £20 and 50p of capital and interest is repaid each month for a year, the fees would actually be £2.07 or 10.35%. While this fee isn’t taken directly from your interest, it is taken in the form of loan costs, therefore reducing investors’ returns.
My fees charged from July – September 2018 were 13.65% of my interest while fees from January 1st, 2017 to December 1st, 2018 were 9.04%.
No Default Statistics Or Loan Book Download
Funding Circle used to be one of the most transparent peer to peer companies but in mid-2018, default statistics and loan book download features were removed. I presume this decision had something to do with the share flotation but for investors, this lack of transparency is negative and a decision I disliked so much, I reduced my investment through Funding Circle.
Low Recovery Results On My Defaulted Loans
Since most of Funding Circle’s loans are unsecured, low default recovery is to be expected. From January 1st, 2017 to December 1st, 2018, only 2.48% of my bad debt amount had been recovered.
What is concerning about these low recovery numbers is that if a recession were to occur, I can envision capital losses as a result of low bad debt recovery.
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.
Idle Funds Can Lead To Cash Drag (Returns Lost To Uninvested Money)
As I experienced, idle funds lead to a reduction in estimated returns. This happens when lender supply is greater than borrower demand. Since Funding Circle only offers autobid products, there is no way to manually invest this idle money into loans.
I stopped manual investing with Funding Circle in 2015 but I reinvested when manual investing was abolished in favour of their auto-investing feature. Manual investing was simply too time-consuming which is why I exited in the first place. I still use the Balanced product despite the targeted rates being increased on the Conservative product. I think the Conservative product offers 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.
Two issues recently led me to reduce my investment through Funding Circle. Firstly, the removal of the default statistics and loan book download feature and secondly, the lack of bad debt recovery. If these issues are fixed in the future, I may reinvest but for now, I am in wait and see mode.
Funding Circle Review Conclusion
Having lent billions of pounds globally, Funding Circle is a giant in the peer to peer funding world, plus it’s a well-funded company that has been growing year to year. I do like the fact that investing is hands-off and hassle-free and provides a competitive return. My gross returns are in the 9% range. Funding Circle’s ISA will help lenders to achieve higher tax-free returns. Other than the two issues I listed above which I hope are addressed, I have been relatively happy investing through Funding Circle.
Funding Circle could be a part of your diversified peer to peer lending platform portfolio, alongside other companies such as Assetz Capital.
Thanks for reading my Funding Circle review.
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** 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. **