Funding Circle Review
Funding Circle Suspends Retail Lending In Favor Of CBILS Loans– Funding Circle UK – ISA Review & Default Problems Discussion.
My Lending Experiences & Actual Investment Returns Published Monthly Below.
What is Funding Circle?
Funding Circle is one of the largest Peer to Peer lenders with operations in 4 countries.
Targeting returns from 4% – 6.5% on their balanced investment options, from their Funding Circle UK office by providing Peer to Peer loans to property developers and small businesses throughout the UK. Returns are reliant upon sensible diversification (which is accomplished automatically for you), and their due-diligence and experience with its borrowers. There is no provision fund or buyback guarantee, so target returns include expected default rates which are just part of the lending process and are factored into overall return projections. This is part of why the recent default increase discussed below is affecting income numbers so much.
Funding Circle have lent over £5 billion since they started in 2010 which makes them one of the largest P2P lenders in the world, and certainly the largest in the UK.
In 2018, Funding Circle went public with a share price offer of 440p. Since the IPO, Funding Circle’s share price has come down significantly which grabbed some media attention. Funding Circle have been one of the top players in the Peer to Peer lending market for quite some time. Moving forward it remains to be seen how successful they will be.
My Experience So Far
Funding Circle used to be considered one of the better options for reasonable returns from an experienced, larger company. Even before the pandemic they were having a few few problems with defaults. I’ve been caught with a few myself where XIRR has been falling rapidly and monthly income has been negative, so I’m currently in “wait & see mode” with them.
Now because of COVID they are only loaning through the Coronavirus Business Interruption Loan Scheme (CBILS) which doesn’t allow retail lending so you and I can’t invest there for now. I still have a medium size investment there but I’m withdrawing as it’s paid off.
If looking for somewhere else to invest with similar returns to Funding Circle but with asset security, take a look at Assetz Capital or CrowdProperty as they offer similar loans but with a better track record and security.
My Funding Circle Strategy.
My Funding Circle strategy for the COVID-19 situation is to wait & see what happens. There is no other choice right now.
The Obvious Investor – Easy-Info Table© – Funding Circle Review
Overall Rating*: (2.4 / 5)
Who can invest: different rules per location
Loan Currencies: £ (UK Office)
Estimated Return: 4.3% - 6.5% depending on account (my projected 7.2%)
My Actual Return
My Calculated XIRR: 3.75%
Risk Rating*: 4/10 - Low-Medium
Early Exit: Yes, fee of 1.25%
Min. Investment: £100 initial deposit.
Deposit Funds: UK bank, or a UK debit card.
Same or next working day.
Auto-Invest: Yes - 2 accounts
Manual Invest: No
Lending To: Borrowers
Loan Types: Various Business Loans.
Default Rates: Projected 4.4% - 6.4%
Loans Amortize: Yes
Loan Security: Some (not all) loans secured by property, land or
Provision Fund: No
Time to Invest: Usually Quick. few days depending on loan availability
Time to Mange: None (auto-invest)
Lender Fees: 1% fee to lenders
Payments Received: Monthly - Various times throughout the month.
Amount Lent: £5 Billion (UK)
Number of Investors: 81,000
Loan/Dflt Stats: Yes, Click Here
Regulated: Yes: FCA
Location: HQ - London, UK. also have locations in USA,
Germany, and the Netherlands
Launched: August 2010
Email: [email protected]
Telephone: 0800 048 8747 (UK)
IFISA/IRA: Yes: IFISA
Cashback**: £50 Amazon.co.uk Gift Cert.
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How to Sign Up**: Sign Up Here!
Funding Circle UK has been around since 2010, so they have a good amount of experience under their belt.
As of writing this Funding Circle Review, figures suggest they have lent almost £5 billion to UK businesses, from 81,000 investors in the 9 or so years they have been in business.
Funding Circle also has German, Netherlands and USA divisions lending to businesses in their respective locations. Funding Circle’s shares & share price are on the UK stock market.
Funding Circle UK are regulated by the UK’s Financial Conduct Authority (FCA) with full permissions under FCA number 722513. Funding Circle are also regulated since they launched their share price offering in their IPO.
They gained FCA permissions in May, 2017. It’s important to note that the FCA is not the same as the FSCS (Financial Services Compensation Scheme), so capital is not protected as it would be in a bank.
Opening an account with Funding Circle is fairly easy. Just the usual ID checks.
If they can verify you though one of the UK’s credit agencies, you will be approved immediately. If not, you may need to send them a copy of your passport or driving license, and a utility bill or bank statement.
Residents of most countries can sign up with Funding Circle in the UK if they can pass the ID checks and have a UK bank account.
If you don’t have a UK bank account, see my TransferWise Borderless Account review for more information on how it may be possible to get UK banking details even if you’re not a UK resident.
Residents of countries where the company operates will need to contact their local office for requirements for your specific location. As this is beyond the scope of this Funding Circle review.
Deposits & Withdrawals
Deposits and Withdrawals are made by bank transfer from a UK bank, or a UK debit card.
From a bank account, deposits usually show up in your account the same or next working day.
Debit card deposits show up instantly. Withdrawals are only to a bank account and typically take 2 – 3- business days.
Time to Become Invested – Funding Circle Review
It can take a few days to get invested into loans when in any of the accounts.
I’ve found it varies based on the amount of capital I am investing, as well as the loan book.
All of the accounts are auto-invest accounts, so we are reliant on the platform as to how long it takes to distribute capital.
You can always see from the website dashboard how much is invested (Lent out). And how much is waiting to be invested (Available funds).
Who are we lending to?
Funding Circle is a true Peer to Peer Lending Platform. Lenders are lending directly to borrowers who are typically small to medium size British businesses.
Loan agreements are directly between the lender and the borrower. Funding Circle just acts as a middle man, managing loans, payments and debt collection etc.
Most loans are unsecured apart from director personal guarantees. There are a few loans, mostly property development loans, which are secured by property.
On their website you can always drill down to see information on security.
As you can see below, it clearly states if loans are secured or not.
Amortization – Funding Circle Review
Most of Funding Circles’s loans amortize, meaning you receive capital and interest payments every month.
When loans amortize, it reduces loan risk compared to a non-amortizing loan, in which nothing is received until the end of the loan period, or only interest is received monthly and then the capital repaid at the end of the loan period.
Amortization is the paying off of debt with a fixed repayment schedule in regular installments over time. It is an accounting technique used to lower the cost value of a finite life or intangible asset incrementally through scheduled charges to income.
It’s easy to see on their website when loan payments have been made. And when payments are scheduled by drilling down in any loan listing.
Selling Loans and Withdrawing Capital
There is no exit fee for selling loans. Under “normal market conditions”, loans can be sold and capital withdrawn within a few days, sometimes faster, providing there are enough other lenders to cover your loans (typically not a problem). Capital in a Funding Circle ISA are obviously subject to retirement account rules. Lately though, with the Funding Circle problems, loans have been taking much longer to sell.
Here you can see the screen for selling loans and withdrawing capital:
Diversification – Funding Circle Review
Their systems aim for diversification of 0.5% of your account balance per business you are lending to. Providing you have at least £2000 in your account, it will usually achieve that number or better.
This means when loans go bad, there should not be a big chunk of capital disappear and affect your account too much.
As you can see below, I am lending to hundreds of businesses with no more than 0.5% in any single business.
Another thing you can see on the website is a page where loan comments are made.
As a result you can typically see if loans are late, or other comments regarding the individual loans. Although I do have to say, since the Funding Circle default problems, the comments have been less it seems.
Provision Fund – Funding Circle Review
There is no provision fund with Funding Circle (one of the problems in my opinion). Their target rate takes into account expected default levels and loan losses under normal market conditions.
It’s always easy to see from the summary screen where your account stands with tracking those numbers.
You can see by the screenshot above that I have losses on this account. It’s not necessarily as bad as it seems yet though. Even though this loan is marked as a loss, there is still a chance that some of the capital could be recovered. See comments below from drilling down.
Defaults are an expected and accepted a part of lending.
Funding Circle’s team are very experienced at loan recoveries, so there is always a chance down the road that some of this could be returned to my account.
Tax Free IFISA Account
Account Options (Classic Account or Funding Circle ISA)
There are 2 automated lending options, one a “Conservative” approach targeting 4.3% – 4.7%% returns and what they call a “Balanced” approach targeting 4.5% – 6.5%.
Personally I only use the “Balanced” approach as it can take longer to get invested only investing in the two top (A & A+) risk bands, plus I really don’t consider 4.3% to be a great return considering most of their loans are unsecured.
They used to have a manual investing option. However it is no longer available so I have not covered it in this Funding Circle review.
Loan Information – Funding Circle Review
The website offers the ability to drill down and see what loans you are actually invested in, as well as information on the individual loan.
As you can see there is a wealth of information available about who you are lending your money to.
Funding Circle is one of the few Peer to Peer lenders that have produced an app for phones and tablets. Available on iOS and Android.
As a result you can do with the Funding Circle App much of what you can do with the website, including adding or withdrawing funds.
The summary screen gives you similar information to the website. Portfolio total and orders etc.
It is easy to drill down to see what actual and expected returns you are looking at.
Summary – Funding Circle Review
Although they used to be one of my favorite UK Peer to Peer lenders. The recent Funding Circle problems with defaults has caused me to hold off on investing any more capital with them for now. They are still one of the larger, older, more established Peer to Peer lenders so hopefully things will turn around soon.
The Funding Circle ISA makes them a good choice for potentially tax free investing in a retirement account. However I would personally wait a bit before moving an ISA over there.
Thumbs Up Points for Funding Circle
Safety – Is Funding Circle Safe? – It’s a big company, regulated by the UK Financial Conduct Authority and makes preservation of your capital one of their top objectives
Auto-Invest – means virtually no time managing investments. Just send your money over, decide which portfolio you would like to invest in.
Reasonable Rates – from one of the larger, peer to peer lenders, the ability to get as much as 6.5% (as of 05/2019) or more is not too bad at all.
Website – the Funding Circle website is very easy to use and understand. Some P2P websites leave a lot to be desired.
Large Investments – because the Funding Circle’s loan book is big, it can easily gobble up large amounts of capital, again reducing cash drag for larger investors.
£100 minimum investment – easy to get started without a huge initial commitment
Zero cost exit – Funding Circle doesn’t charge any points for exiting your investment early (providing there are buyers available to buy your loan parts).
Low Default and Bad Debt Rates – this is important because there is no protection fund. Current expected bad debt rates are between 1.4% and 3%
Public Company – Means it’s easy to see Funding Circle’s share price, as well as an audited account of how the company is doing.
Financial Conduct Authority (FCA) Regulated.
Tax Free Innovative Finance ISA (IFISA) – Funding Circle ISA available for potential tax free investing for UK investors
Thumbs Down Points for Funding Circle
Initial Investment Time – It can take a couple of weeks to get your money invested initially. .
Falling Return Rates – target returns have been falling lately.
Unsecured Loans – many of their loans are unsecured loans given to businesses, so if things were to go bad, you don’t have any collateral.
Funding Circle Share Price – dropped after IPO which makes people nervous. My personal opinion is that it won’t affect their business and will recover in time.
Lender Fees – lenders are charged a 1% fee from the loan repayments. Most P2P lenders charge their borrowers rather than investors.
Defaults – Funding Circle Problems – they have been seeing a lot of loan defaults recently.
Risk Factor – 4/10 – Low – Medium
How safe is Funding Circle? I consider them to be at the lower to medium end of the risk scale. Taking in to consideration that many loans are unsecured.In most market conditions asset security is not so important providing default rates have been factored in to target returns. However in a severe recession it could come in to play if many loans defaulted. Currently they are having issues with defaults so it may be wise to wait until they recover before investing.
Also the recent defaults don’t look good for them. I don’t consider that to be an indicator of overall safety though. This was mostly due to some bad decisions to relax lending criteria for a short spell. Hopefully when those loans have gone through the system, things will be back to normal.
Either way, I intend to leave a portion of my Peer to Peer lending portfolio with Funding Circle as I believe they have plenty of experience and they will get through this rough patch.
Who Can Invest with Funding Circle
Only UK residents with a U.K. address and bank account can invest with Funding Circle UK.
USA and European residents can invest in their individual locations. However rules differ per location. Contact Funding Circle for further information.
Offers & Signup Links**
New Customers receive a £50 Amazon.co.uk Gift Certificate when they join Funding Circle using links here on ObviousInvestor.com and invest £2000 or more!
Similar Lenders to Funding Circle
Funding Circle Promo Video
Disclaimers: * My opinions, reviews, star ratings and risk ratings are based on my personal investing experience with the company being reviewed. These ratings are personal opinions and are subjective. You should do your own research before investing any capital and not base investments solely on the opinions published on this site. ** Some of the links on this website are affiliate referral links. When you click on these links, I can sometimes receive a commission, at absolutely no cost to you. This helps me to continue to offer new reviews and monthly portfolio updates here on my website. I don’t receive commissions from all lenders and it has no effect on my ongoing opinions on lenders. Income on my investments and capital preservation are my main motivations. Platforms reviewed on this website I am currently investing with, or I have invested with in the past. You can see with full transparency on my Lending Portfolio Returns page which lenders I am invested with (or have previously been invested with) at any point in time. I am not paid a fee by any of the companies to write reviews, so the reviews are unbiased and purely based on my own personal experiences. Please read my full website Disclaimer before making investment decisions.
* My opinions, reviews, star ratings and risk ratings are based on my personal investing experience with the company being reviewed. These ratings are personal opinions and are subjective. You should do your own research before investing any capital and not base investments solely on the opinions published on this site.
** Some of the links on this website are affiliate referral links. When you click on these links, I can sometimes receive a commission, at absolutely no cost to you. This helps me to continue to offer new reviews and monthly portfolio updates here on my website. I don’t receive commissions from all lenders and it has no effect on my ongoing opinions on lenders. Income on my investments and capital preservation are my main motivations.
Platforms reviewed on this website I am currently investing with, or I have invested with in the past. You can see with full transparency on my Lending Portfolio Returns page which lenders I am invested with (or have previously been invested with) at any point in time. I am not paid a fee by any of the companies to write reviews, so the reviews are unbiased and purely based on my own personal experiences.
Please read my full website Disclaimer before making investment decisions.