Funding Secure Review – My Experiences As A Lender

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Funding Secure

Funding Secure Review

** Funding Secure review updated April 8th, 2019 **

Funding Secure started as online pawnbroking site that offered high-interest rate returns for lenders willing to invest mainly in secured jewelry loans. Now Funding Secure mainly offers higher interest property and land loans which can be risky. Read on for my unbiased Funding Secure review.

My March 2019 Investment: Reduced
My annual rate of return: 9.9% (Net return before taxes)
Est. Annual Returns:Up to 15%
Recent Return Rate Trend:← →
My Risk Rating *:
Launched:July 2013
Early Exit:
Autoinvest:X
ISA Available:
Loan Types:Pawn, property
Loan Security:Jewellery, cars, property, art, collectibles
Provision Fund:
X
Lender Fees:None
Min Investment:£25
Time to Become Invested:Fast
Time Needed Managing:
Low
Lending Agreements With:Borrowers
FCA Regulation:Full
Cashback Offer:
£25 cashback when you invest £1,000

* 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?

Click here to receive a £25 bonus. (This is a referral link where you receive a £25 bonus when you invest £1000 into loans. You will see the referral name as “broadstone”.This cashback offer is no cost to you and helps me keep this website operating so thanks in advance!).

The Funding Secure Review: Important Information

Pros
  • Lender returns can be high if you can choose the correct loans
  • All loans are secured
  • Secondary market to buy and sell loans
  • ISA available
Cons
  • Interest paid at loan completion rather than monthly
  • Overdue loans and defaults increasing
  • Some default recovery issues / lengthy recovery times
  • Valuations are subjective and some are over-optimistic
  • Defaulted loan updates can be sporadic and slow
  • Property heavy
  • Secondary market for selling can be slow unless discounts offered
  • Secondary market loan purchases come with tax liabilities when buying as individuals
Funding Secure Review: My experiences so far….

I have been investing in Funding Secure since early 2015. I originally invested in Funding Secure for the jewelry style loans, but now the company offers mainly property loans other than the older renewed jewelry loans. My return rates have been acceptable but as of February 2019, 9 out of 21 of my property loans have defaulted so I have held back on investing further until I see a positive recovery outcome.

I fully expect defaults when I loan money on property bridging and development loans. After the defaults occur, only then can we tell if the property valuations are accurate and if the recovery efforts are successful in making investors’ whole.

Whilst I invest in property loans offering 12% per annum, after defaults I expect my long-term returns to be in the 7-8% range.

What Is Funding Secure?

Funding Secure used to be an online pawnbroking site that offered high-interest rate returns for lenders willing to invest mainly in secured jewelry loans. The company has since moved away from its roots favouring higher risk property loans. There is a high-risk factor involved since borrowers pay 2.4% monthly, hence the high lender returns.

Loans are given mainly against property but sometimes on items such as jewelry, art, wine, cars and other interesting items. The secondary market offers a possible exit, but has tax implications for buyers and isn’t very liquid unless you’re willing to offer bigger discounts.

Bonus interest rates are also offered for large investment sums, usually £10k and higher. New loan flow varies as lender demand and borrower supply is constantly changing.

In October 2018, the owners of Funding Secure sold 75% of their stake to an investor in order to fund company growth and expansion.

How Can I Contact Funding Secure?

Email: customerservice@fundingsecure.com
UK Tel: 0800 690 6568

When Did Funding Secure Launch?

July 2013

Are They Regulated? 

Yes, by the Financial Conduct Authority #698305 under full permissions granted March 31st, 2017. Investments made through Funding Secure are not covered under the FSCS (Financial Services Compensation Scheme).

FCA regulation is nothing like the FSCS, which covers consumers when they deposit money in banks. The FCA reports to the UK government and has the ability to pursue criminal action against companies which violate its standards and codes of conduct.

Funding Secure’s Financial Health

Funding Secure chose not to publish their profit and loss figures but you can view their company accounts here.

Who Can Open An Account?

Anyone who can provide the requested documentation. Even people from the USA can sign up. The ease of sign up will depend on which country you reside in and whether you can pass the Anti Money Laundering checks. Basically, if you’re not a criminal, you can probably get an account.

What’s The Signup Process Like?

They run the usual identification verification checks.

How Are Deposits Made?

Deposits are made via bank transfer and are very fast. Once you have completed your bank transfer, remember to click on the Deposit button on Funding Secure’s website. This will notify the staff that a deposit is on its way so your deposit will be credited quickly (usually within a couple of hours).

What’s The Minimum Deposit / Investment?

Deposit Bank Transfer: £5 Minimum
Investment into Loans: £25 Minimum

Does Funding Secure Offer An Innovative Finance ISA?

Yes

How Much Interest Does Funding Secure Pay Lenders?

Rates are usually in the 10-15% range. Sometimes bonuses are offered for larger investment amounts but you usually have to invest £10k + to receive these extra % bonuses.

Is Interest Paid Immediately Or When the Loan Starts?

This varies depending on the loan. Some loans start funding slowly so lenders are offered instant returns to encourage investments. Secondary loan parts start accruing interest upon purchase.

When Is Interest Paid?

Interest is paid at the end of the loan term, when the borrower repays the loan or when money is recovered after a default. Loans to do not amortize.

Am I Lending to Funding Secure Or To Borrowers?

Borrowers. All investor’s funds are ring-fenced and kept in a separate client account until the individual loan is activated at which time the funds are transferred to the borrower – via a solicitor.  Each investor can download a specific contract for each loan they are party to – confirming the borrower, the amount invested, the rate of interest and the dates of activation and completion.

What Are The Fees? 

No fees to lenders.

What Are The Length Of The Loans?

Loans are usually six months to one year but loans can be repaid at any time or renewed.

What Security Does Funding Secure Use?

The items borrowed against secure all loans. Loan-to-value widely varies from 12% to 70%.

What Security Does Funding Secure Loan Against?

Currently, most loans are on taken against property and land, but in the past, Funding Secure has had some pretty interesting loan offerings. Cars, jewelry, boats, parking spaces, model trains, Italian books, art, and domain names. If you can think of it, Funding Secure has probably lent money against it.

Loans secured against “alternative” items such as art or trains are ones I tend to stay away from. I think the items that secure such loans are difficult to value and could be difficult to recover if they default.

What Are the Loan Default / Capital Loss Rates? 

Out of Funding Secure’s total loans, their default rate as of January 2019 stands at 7.6% and the capital loss rate is 6.5%. This default rate has risen from 4.3% (as of September 2018) while the capital loss rate was 9.3%.

I expect the defaulted loan number to increase as the loan book becomes more mature. Remember that default numbers aren’t as important as capital loss numbers as the majority of defaults see the recovery through collection sales. These numbers change monthly so be sure to see current loan book statistics here.

What Is Default Handling Like? 

So far I’ve experienced some defaults on past items such as jewelry, cars and property. Handling has been efficient and out of 89 completed loans, seven defaulted, six of which were fully recovered and repaid.

The seventh defaulted loan completed default recovery after 429 days. The original loan was for six months and because the security was in administration for so long, fees accrued and the recovery amount was less than the capital and interest owed to lenders. Quite impressively, instead of passing the losses to lenders, Funding Secure decided to repay lenders their full capital but not their interest.

Of my 46 current active loans (as of November 2018), five are in default and unrecovered. Four are property loans and one is a jewelry loan. Default recovery on property can be a long process as it’s much more difficult to find a property buyer than a jewelry buyer.

My oldest defaulted property loan has been in recovery for since June 2016 but it looks like a sale will finally take place in February 2019 although this date seems to be delayed further and further.

Defaults are a part of peer to peer lending and this is a good example of how lengthy property default recovery can be and how the expenses can lead to lender losses.

Is There A Secondary Market?

Yes, there is. For months lenders requested one and were excited when it was finally announced in December 2015. The secondary market has drawn some criticism including the ability for sellers to mark up loans with premiums. Thankfully Funding Secure recently reduced the premium addition option to a maximum of 1%. Personally, I believe premiums would be better off eliminated on the secondary market. All premiums do is encourage loan flippers to buy more loans than they need and resell them on the secondary markets for profit and slow down liquidity.

The other secondary market complaint is the tax implications of buying loans. Since Funding Secure pays the full interest owed at the end of the loan term rather than monthly, when you an individual buys a loan on the secondary market, that individual is responsible for paying tax on the total amount of interest no matter when the loan piece was purchased. Let me give you an example for illustration purposes:

Martin places his loan piece for sale on the secondary market with 30 days of the 180 days remaining on the loan. Percy purchases Martins loan piece and the very same day, the loan is paid off by the borrower. Percy realises his tax statement reports the entire 150 days of interest from his purchased loan piece. This means Percy owes the tax man 150 days of interest even though he only owned the loan for less than a day.

You can see why the above scenario is good for sellers but terrible for buyers. Using a Ltd. company to buy loans or using an IFISA could solve this issue but please consult your tax professional for further advice on this matter.

Since I don’t invest through the IFISA, I only use the secondary market to buy brand new loans and to sell loans.

Here’s what the secondary market dashboard looks like:

Funding Secure

What Are The Main Risks?

Company Failure:  In the event that Funding Secure were to fail, the contracts (loan agreements) between borrowers and lenders would be handled until term completion. Company failure is, in my opinion, the biggest risk to peer to peer lenders. (See below)

Economic downturn: During harsh economic times, defaults would naturally rise. But if you’re smart and only lend on sensible items that could be resold for a good recovery rate such as jewelry and property, this should cushion you from losing money as a result of higher default rates.

Gold downturn: Funding Secure loans money against jewelry using for scrap prices for valuation. If the price of gold tanked, the jewelry might be significantly less valuable than the amount loaned on it.

Valuation mistakes: Much reliance is placed on accurate valuations. If a mistake is made, the items loaned against could be worthless at resale. I believe the Funding Secure team is accurate with their own valuations, however, when using third parties, mistakes can be made.

Is There A Provision Fund?

No

What Happens If Funding Secure Goes Bust?

All contracts (loan agreements) between borrowers and lenders would be handled until term completion. All uninvested funds are separately held and would be returned to investors. Funding Secure has provided the Financial Conduct Authority with proof there would be enough income for the peer to peer loans to cover the cost of managing and administering the outstanding loans.

THUMBS UP FOR FUNDING SECURE:

Interest Rates

Funding Secure offers lenders industry-leading returns from 10-15%. Sometimes bonuses of up to 3% are added when you invest larger sums. The problem is you have to be able to choose the correct loans to receive the benefit of these rates and that has proven to be difficult.

Secondary Market For Selling

There is a secondary market but selling loan pieces is challenging unless you offer a large discount so it’s a pro and a con. I like the fact you can sell a portion of your loan piece rather than the whole amount. You also receive past interest when you sell.

Deposits, Payments & Withdrawals

Deposits are made via bank transfer and are handled very quickly during business hours. Funding Secure has a handy deposit tracker that notifies a staff member of a transfer. I’ve had funds show up within 15 minutes of making a transfer. Withdraws usually happen the same day. Interest and capital payments are credited promptly at the end of the loan.

The Website

The website is very easy to use and always works. Here is the Portfolio dashboard:

Funding Secure

THUMBS DOWN FOR FUNDING SECURE:

Secondary Market For Buying

The problem with buying loans on the secondary market is that the buyer gets lumbered with the seller’s tax obligation for the entire loan term. This is the rea son why many lenders only use the secondary market for selling loans (myself included). See my explanation above for more information.

Defaults

Like some other peer to peer lenders, Funding Secure is experiencing more defaults as its loan book matures. A certain level of defaults are acceptable within peer to peer lending, however, Funding Secure seems to have its fair share of issues.

For example, £90,000 was loaned against a gemstone that only fetched £10,000 at auction after the borrower defaulted. This meant lenders’ faced some heavy capital losses. This clearly represents a valuation error that Funding Secure should have prevented. Valuation mistakes like this reduce my confidence in a platform.

Interest Paid At Loan Completion or Renewal

This greatly increases lender risk and is a factor that is often overlooked. Most peer to peer lending companies pays either monthly capital, interest or both. Monthly capital and interest payments reduce the loan balance, therefore, lessening lenders exposure and risk.

Funding Secure treats all loans like pawn loans and pays interest at the end of loan term or renewal. It would be nice if Funding Secure paid capital and interest monthly on property loans but unfortunately, they don’t. Remember to consider the interest return you are making for this added risk.

Some Defaults Have Lengthy Recovery Times

So far I have experienced several property defaults. One is still unrecovered and the loan has been active for over 1100 days. Another defaulted loan took about 500 days to recover but was handled appropriately.

Remember it is very possible to lose money on property loans due to falling values or mistakes in the valuations. This can happen through any peer to peer lending company. As long as you aware this the risk of investing in property loans that pay 12%+ annual returns, defaults and possible capital losses won’t be a shocker.

Defaulted Loan Updates Can Be Sporadic And Slow

Funding Secure used to be very good at regularly communicating progress updates on defaulted loans. I’ve noticed this communication has become worse over time on some loans. For examples, as of November 1st, 2018, the last information updates on two of my defaulted property loans were provided on July 31st and August 7th respectively. I think four months for an update is far too long.

Diversification

It can take a while to build a diverse loan book since new loan offers can be sporadic. You can buy loan pieces on the secondary market but I only advise this if the loan is newer and there isn’t too much of a purchase premium. Remember there are tax implications to buying loans on the secondary market.


My Strategy

Times have changed at Funding Secure and so has my strategy. Once the jewelry and Rolex loans ceased, I invested in more property loans. These loans are higher risk so I’m pickier and I expect more defaults. I nearly always hang on to jewelry loans as they tend to be renewed long-term and they are easily disposed of in the event of default.

As the more of my loans have defualted, I have decided to cease investing in Funding Secure until I see some recoveries.

The Funding Secure Review Conclusion

If I had one wish, it would be that Funding Secure offered more of the jewelry and pawn style loans it was founded on rather than offering so many property development loans. Due to the increase in property bridging and development loans, defaults have risen which is to be expected. Just be aware property loan recovery can be a slow process. For example, I have a loan that has been in recovery for over two years.

Having to wait until loan completion or renewal to receive any payment is negative and would be less of a problem if the secondary market was more liquid for selling.

Some of the recovery amounts on defaulted loans have been unimpressive, again this is the risk nature of lending against loans which pay high interest rates.


Click here to receive a £25 bonus. (This is a referral link where you receive a £25 bonus when you invest £1000 into loans. You will see the referral name as “broadstone”.This cashback offer is no cost to you and helps me keep this website operating so thanks in advance!).

Disclaimers: I’m not paid by or 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 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 Secure review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this Funding Secure review are only opinions based from my own personal experiences. Information is accurate at the time of writing. As with any financial investment, peer to peer lending involves risks, so never invest more than you can afford to lose. **