Funding Secure Review
** Funding Secure review updated September 15th, 2019 **
I began investing through Funding Secure in June 2015. Funding Secure started as online pawnbroking site that offered high-interest rate returns for lenders willing to invest mainly in secured jewellery loans. Now Funding Secure mainly offers high-risk property, bridging development, and land loans.
After four years, I’ve become increasingly frustrated with the lending through Funding Secure (and other higher-risk lending companies) as I see a rise in defaults and slow resolutions and communication regarding defaulted loans.
I’ve come to the conclusion that some of the assets securing peer to peer development loans aren’t particularly attractive and it’s difficult to understand which assets are good and which are poor. I am now moving away from high-risk peer to peer lending investments and won’t be lending through Funding Secure in the future.
My August 2019 Investment: Reduced
My annual rate of return: 8.9% (Net return before taxes)
|Est. Annual Returns:||Up to 15%
|Recent Return Rate Trend:||← →|
|My Risk Rating *:|
|Loan Types:||Pawn, property|
|Loan Security:||Jewellery, cars, property, art, collectibles|
|Time to Become Invested:||Fast|
|Time Needed Managing:||Low|
|Lending Agreements With:||Borrowers|
|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
- Lender returns can be high if you can choose the correct loans
- All loans are secured
- Good flow of new loans
- Secondary market to buy and sell loans
- ISA available
- 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
- 30 Day Access account pays very low interest for the risk involved
- Property heavy
- Secondary market for selling can be slow
- 1% max discount on secondary market
- 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 June 2015. I originally invested in Funding Secure for the jewelry style loans and was happy, but now the company offers mainly property loans other than the older renewed jewelry loans. My return rates have been acceptable but as of August 2019, 9 out of 21 of my property loans have defaulted.
I fully expect some 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.
Funding Secure now offers a 30 Day Acess account which targets a return rate of 5% gross per year. You can read about my views on this account in my Thumbs Up and Thumbs Down section below.
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?
UK Tel: 0800 690 6568
When Did Funding Secure Launch?
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?
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.
Once you factor in almost certain defaults, expect your returns to be much lower.
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 invested into. This contract confirms 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 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 September 2019 stands at 7.6% with 17.7% of loans being overdue. The capital loss rate is 8.2%. 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 while these default numbers are important, the capital loss rates are more important as the defaults pass through the recovery and sales process. 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 mixed with property loans being troublesome. I’m disappointed by the high number of defaults and lack of communication and I hope the new management is committed to cleaning up these messes.
One of my defaulted loans was recovered 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. Instead of passing the losses to lenders, Funding Secure decided to repay lenders their full capital but not their interest so credit to Funding Secure for this but I’m sure this won’t be the case for the other defaulted loans I own.
Total loans: 29
Loans in default: 9
Active loans: 20 (8 appear to be in trouble or behind)
Of my 29 currently active loans (as of August 2019), nine loans (all property) are in default and unrecovered with five active property loans that are in trouble or behind on payments. Default recovery on property can take years and it’s much more difficult to find a property buyer than a jewelry buyer.
My oldest defaulted property loan has been in recovery since June 2016 and is still unresolved.
I expect more of my active property loans to fall into default which is why I am ceasing my investing through Funding Secure.
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. The secondary market offer sellers the ability to add up to a 1% premium or discount on loan sales.
An important consideration of Funding Secure’s 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 taxman 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:
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.
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?
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:
Funding Secure offers lenders industry-leading returns from 10-15% if you can somehow get lucky and pick out the good loans. Sometimes bonuses of up to 3% are added when you invest larger sums. If you can select the correct loans, you can achieve good returns.
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 is very easy to use and always works. Here is the Portfolio dashboard:
THUMBS DOWN FOR FUNDING SECURE:
Like some other high-risk 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 is having 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.
30 Day Access Account
Funding Secure offers a 30 day access account which targets a 5% gross annual return for lenders. This account invests money across loans which Funding Secure chooses giving the lender no control. The risk taken by lenders is simply too high, especially given Funding Secure’s recent defaults. Also, exit isn’t guaranteed.
There are far better options in the peer to peer lending world for this level of expected gross return.
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 reason why many lenders only use the secondary market for selling loans (myself included). See my explanation above for more information.
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 1400 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 are 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. Sometimes it can be a couple of months before an update is added to a defaulted loan.
Secondary Market Has A 1% Maximum Discount
When you use the secondary market discount, you can sell at a discount. It would be nice if Funding Secure allowed lenders to sell at more than a 1% discount on sale in order to exit loans if need be.
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.
Times have changed at Funding Secure so I won’t be investing further through the company. Once the jewelry and Rolex loans ceased, I invested in more property loans. Some of these loans have turned out poorly because of the poor assets which secured the loans. The only loans I renew now are jewelry as I know if these default they should be easier to sell.
The Funding Secure Review Conclusion
If I had one wish, it would be been that Funding Secure steered clear of property development funding. Funding Secure had good success offering the jewelry and pawn style loans it was founded on. In an attempt to expand the business and loan book, Funding Secure moved into the property and bridging finance.
My personal loan book has seen too many defaults likely caused by poor asset security which I was late in spotting as it was early on in my peer to peer lending journey.
The 30 Day Access account target interest of 5% gross per year is far too low for the risk taken.
If you still want to try development and bridging peer to peer lending, be aware that the recovery will be a slow process that could take several years to complete.
After four years of lending through Funding Secure, I no longer have the stomach for high-risk lending and have decided future lending through Funding Secure isn’t for me.
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** 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 on 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. **