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Any feedback on Funding Circle ?
Clive B
Posted: 29 June 2011 18:54:39(UTC)
#1

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I wondered if anybody has any experience of Funding Circle (http://www.fundingcircle.com/) - a method by which individuals bid to lend money to businesses. Similar to the person-to-person Zopa site.

I accept that some readers may not consider this to be an "invesment". Certainly isn't going to give returns to match Equity, but may be comparable to Corporate Bonds.

Any feedback welcome.
Benj
Posted: 29 June 2011 20:46:10(UTC)
#2

Joined: 12/04/2008(UTC)
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There will many who are better qualified than I to comment on the technical aspects of Funding Circle.

I have made a small investment to get the feel of it.

Their quoted average yield is 8.3%, which seems to be about right to me. Of course, they take 1% off of that, and then one must pay tax on the remaining income. So for a normal rate taxpayer, the final yield is in the 5% range. One bone of contention is that you don't get any tax relief for any losses on loans you make. The loans are for either 12 or 36 months. Obviously one must take a view on fixing the interest rate for 3 years at a time.

The actual lending process is pretty easy, and the website explains it pretty well. There are obviously ways of timing of bids to try and get the maximum yield and so on. There is an auto-bid process which works OK. One can also buy existing loan-parts from other lenders.

The site seems pretty well run. Interestingly, they have said that they do not wish to run a site-forum at the moment; which is at least honest, if unusual for a social funding site.

One point of concern for me personally is the very poor amount of information provided by many of the borrowers. Not to mention the terrible spelling and grammar used. {That dates me ...}

One or two general sentences seem often to suffice. Almost at random: "What Is The Loan For? Working capital and to replace a previous bank stocking loan,now full [sic] repaid". Or another:- "What Is The Loan For? To grow the business".

Short financial reports are available; and lenders can ask questions about them which are published. The trouble here is that sometimes the figures are not accurate for some reason. Or for instance, a loss is shown for previous years - and no explanation is given for why a profit may be forthcoming. Finally, the current year's figures are given, but there's no indication of what dates they cover; until a member of the Funding Circle staff later posts a discussion point to say what those dates are.

I think I read that most of the loan requests to Funding Circle are refused before they are offered out on the site. So, in view of the poor (IMHO) information given to the lenders, one has to have a lot of faith in the underwriting and review procedure. To be fair, there has only been one default so far in a grand total of 210 loans - but on the other hand, most of the loans are just months old.

So, mixed feelings. The site seems to be well run, and the information about how much you've lent, and when payments are made and so on, seems to be fine. I would be much happier with a more professional feel to the public lending process.

With apologies to Citywire, there is a transcript of an interview with a director of Funding Circle here:- http://www.fool.co.uk/ne...way-to-borrow-money.aspx
Clive B
Posted: 29 June 2011 21:24:50(UTC)
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Thanks Benj

Rather in the wrong order, I signed up with Funding Circle last Sunday to "have a play" with a small amount of money. Only occurred to me today that Citywire might be a good place to get feedback from people.

Clive
Steve123
Posted: 30 June 2011 01:05:43(UTC)
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It seems inherently risky. You cannot know what you are investing in as the company only provides the minimal information it wishes to provide. Further they are only coming to the website because they have been unable to get funding through conventional avenues (ie they are a bad credit risk).
Clive B
Posted: 30 June 2011 08:07:16(UTC)
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Steve123

I accept the point its risky and am only playing with an amount of money I could afford to lose.

With regard to "they are a bad credit risk", do you not believe the stories in the media - that even decent companies just cannot get loans from their banks, as the banks have reduced lending ?

Clive
Annie M
Posted: 30 June 2011 08:51:48(UTC)
#6

Joined: 30/06/2011(UTC)
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I've been an active lender on Funding Circle since November 2010, and have had a very good experience with them so far. My yield is currently 9.2% and on an upward trend as earlier loans (made when "going rates" were generally lower in late 2010 than they have been recently) are gradually repaid. I value the flexibility of the system in terms of getting money out - recently I felt overexposed to a particular borrower so placed some loan parts for sale. They were all sold within a couple of hours. In any event lenders receive monthly repayments of principal and interest from each borrower - money is not all tied up for the loan period.

I value the fact that borrowers are carefully scrutinised before being accepted (or not) onto the site, but one is of course placing faith in the underwriters as there is limited financial information visible to lenders. However, many (most?) are limited companies so that further information is in the public domain if a lender wishes to do further due diligence. I agree that it would be better all round if borrowers' pitches were standardised and quality-controlled as some are indeed poorly written and lacking in detail. As a lender one has a choice about whether to lend and if so to whom, and I for one favour borrowers whose pitches are well thought-out and whose reasons for seeking the loan are compelling. I certainly don't agree with the suggestion that borrowers must be a bad credit risk in order to be seeking FC loans; the key issue for borrowers is not being refused loans but the rates that traditional lenders are seeking from them. Cutting out the middle man achieves a better deal on both sides of the loan

Obviously there is inherent risk of default. Diversification is key. The guidance given to lenders is not to lend more than 5% to any one borrower, though I prefer to be more diversified (max about 3-4%). In the event of default of a borrower, capital losses can be offset against chargeable gains in the relevant year or carried forward. There's been one default (stats on loans and their status are openly available on the FC website).

Now is a good time to be investing on FC as they've got lots of borrowers in the pipeline so are offering lender incentives (including 1.5% cashback on all new funds lent, for a limited period) which boost the true yield. They are also (today I think) migrating the website to a new hosting provider so that it doesn't grind to a halt at busy times.

Generally I am very happy with them and my money is working much harder in the right direction than my share portfolio has been doing lately. For me the key improvements I hope to see in the future are (1) tax efficiency - the ability to hold the investment in an ISA wrapper, and (2) an Android app.
Clive B
Posted: 30 June 2011 09:51:16(UTC)
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Annie M

Thanks for the comprehensive reply.

Having thought about Steve123's point about risk a little more, I'm not sure I agree with it. I've been bidding no more than 6% of my money in any one auction (firm). In order for me to lose (say) 50% of my money, approx 50% of the firms would have to default on their debt. OK, could happen.

However, if I was to invest in a single share, I could easily lose 50% of my money, without the firm even having to default. Hence, I view FC as comparable to a Corporate Bond fund - not stellar returns when compared to equities, some firms could default, but you're compensated for that by the rate you set. Also, like Corporate Bond funds, should not be correlated with equity returns. Always good to have some diversity.

My building society money is only achieving around 3% (if that). If I can make say 7-8% on FC (after their 1% charge), I think that's more than ample "risk premium".

Like you, I'm a little surprised at the lack of detail on some pitches on FC, or failure to explain losses in their financial reports. My answer to that is simple - don't bid in those auctions.

I haven't tried Loan Parts yet, having only started last Sunday, but I can see it has its attractions - either as a quick way to build a loan book, or to offload loans. (Some of the Loan Parts for sale show 36 months still to go, as though the lender made a successful bid (obviously), but then tired of it immediately - I find that a little odd).

Clive
john patrick
Posted: 21 February 2012 17:08:33(UTC)
#8

Joined: 21/02/2012(UTC)
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I've been lending via Funding Circle for over a year now. I'm very happy with the return which I've now built up to over 9%. Net of the 1% charge it's still comfortablly above deposit rates. Clearly there is more risk but in my view it's a very good return compared to the alternatives in the current market.
If the account is opened by a non tax payer and annual interest is below the personal allowance, there is no tax to pay.
Every loan application is risk rated from A+ (lowest) to C (highest) but I understand even C rated loans are below average in terms credit risk compared to all UK businesses - the default rates to date seem to support this
Clive B
Posted: 24 February 2012 14:53:26(UTC)
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John Patrick

You and Annie M with 9.0% plus returns are doing better than me !. I'm still lending through FC with Yield currently showing at 8.9%. To date have suffered no losses at all, but bear the risk factor (0.6-3.3%) in mind at all times when lending.

Clive
kate 12
Posted: 10 May 2012 22:16:21(UTC)
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Joined: 10/05/2012(UTC)
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I think this is a great way for businesses to secure finance when banks are reluctant to lend, however new businesses are left out in the cold. How do we expect to get out of recession when there is no support for new start-up businesses.
Clive B
Posted: 11 May 2012 14:44:29(UTC)
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kate 12

Interesting question. Personally, I'd find the prospect of lending to start-ups way too risky (can't tell how profitable they might be). I believe Crowd Cube (http://www.crowdcube.com/) covers start-ups, but the companies offer equity (shares) rather than pay interest. Not for me.
Fflicker
Posted: 11 May 2012 20:40:10(UTC)
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Joined: 07/03/2012(UTC)
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Out of 42 loan parts I have 3 that have been downgraded and 1 in loss, not impressed at all, will let all loans mature and put the funds to work elsewhere.
Clive B
Posted: 12 May 2012 09:27:30(UTC)
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I'm currently lending to 217 businesses on 445 loan parts (bids). Of those, the loans to 6 businesses have been downgraded, i.e. have had their risk band removed, making it impossible to sell the loans on the second hand (loan parts) market.

Having said that, the directors guaranteeing the loans of 2 of the 6 businesses are keeping up payments and Funding Circle are chasing the other 4. Seems odd that, where payments ARE being made - albeit by the directors, not the firms - the loan is still "frozen".

Money that's frozen on those 6 loans represents 3.1% of the money I've lent out. Somewhat higher than I'd expect and FC suggested. Though, I have to say, no loans are counted as "lossses" yet as 2 are being paid, 4 being chased.

My expectation was never to make lots of money via FC. Rather, to get a rate of return enough above Building Society rates to compensate the risk and FC's fees. Also, to help businesses (admittedly while making a small profit for myself)

Crunch point will come for me if the amount of downgraded (frozen) loans reduces my profit to below an acceptable point. I'd then have to sell out. Waiting to see if those loans were eventually paid back in full would put me at risk of more losses.

FC currently revised their bad loan expectations (https://www.fundingcircle.com/statistics) to include "lifetime bad debt" rather than annual. I wasn't aware that their previous figures were more of an annual than lifetime figure, especially as they now allow 5 year loans (which I have no interest in).

Even then, FC's figures for actual bad debt don't appear to include downgraded loans just those that have been written off as losses.

I have been thinking recently about pulling some/all of my money out. Certainly will if more loans get downgraded, as that freezes the loans (can't be sold).

Don't regret trying it though.
1 user thanked Clive B for this post.
John HP on 12/09/2012(UTC)
stu winston
Posted: 12 May 2012 10:33:43(UTC)
#14

Joined: 02/02/2012(UTC)
Posts: 1


i am regular user of F-Circle
got get my saving working , not sitting in B-S or bank with pittance low interest rates.

like Clive B i been lending since summer 2010
and liked the concept of helping our small business THE big banks should be doing THIS
. In 2010 there was barely £10million loan out to small business ,now it over 30million. There are other peer-2-peer lender out there and growing - in time the Big Banks will have serious compitition.

but F-Circle were i put my money . Unlike Zopa , F-Circle is there to help lend to small to larger business rather than individuals.

-1. i can sell all or parts of any loan if i need the money quickly
-2. Start Ups cant apply - higher risk of defaulting .
-3. i like web page layout - user friendly without being too complex.
-4. u get a see the Business Profile, Credit Score , Financial Summary of last 2yrs and U can ask borrower questions .

my Financial Advisor was impress with my Average rate of return of 9.5% before tax and other fee

Iam glad i not put it in today volatile stock market .

Clive B
Posted: 12 May 2012 14:44:40(UTC)
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Stu

Have you had any of your loans downgraded (risk category removed) making them impossible to sell, or suffered any actual losses ?

Clive
bamp
Posted: 18 July 2012 16:30:57(UTC)
#16

Joined: 18/07/2012(UTC)
Posts: 1

i think they are clueless

i gave them two cases just to see how they performed.

CASE 1

company owned commerical building 40% ltv, good turnover used money in the company for a desposit .

won a big contract need a short term injection of cash for cash flow. very simple. very safe

never needed an overdraft

perfect

5 weeks to make a decision
CASE 2

company in problems, needed money to fund projects , no fixed assets, high over draft.

very high risk

two weeks

They gave 100k company 2 who went into admin, nine months later. Company 1 still going strong, increased profits agains , got funds from funds from the bank in the end

After completed

Asked them to explain after company 1 seem a much safer option, clueless .

told them company 1 could obtain funding from the bank , company 2 couldn,t

Never would use them to invest or borrow from again.

CLUELESS






joanne williams
Posted: 20 August 2012 16:45:34(UTC)
#17

Joined: 20/08/2012(UTC)
Posts: 1

Hi all
I am currently in the process of getting the funds I need for my new business, I am exploring my options f finance. I have a very strong business plan, and am determined to make it a success. If you are looking to invest in a small business please do not hestitate to email me on joannewilliams79@yahoo.com, and see for yourself.
Jo :-)
Clive B
Posted: 20 August 2012 16:59:59(UTC)
#18

Joined: 25/11/2010(UTC)
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Hi Joanne

and how do we know you're not really a guy somewhere in Nigeria (unfortunately the origin of many scams) ?
John HP
Posted: 12 September 2012 08:08:15(UTC)
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Joined: 12/09/2012(UTC)
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I have invested with FC for 18 months but unfortunately due to the high level of defaults, I am thinking of selling my portfolio and cutting my losses. What use is a 9% return, if single defaulters can wipe out all your hard work. I have become very careful and invest less than the 5% suggested min with any single borrower, but that has still not prevented the defaults from occurring.
I am not sure how qualified the team is that does the due diligence on our behalf, but they dont seem to be too good.
FC claim a default rate of less than 5%, but my experience is much higher.
I have phoned FC and tried to discuss the situation, but not received satisfaction.
I much better system is run by Ratesetter, The potential return is less at 6%, but they ensure that defaulters do not affect investors. I recommend that FC follow the same model, as they are not able to run their due diligence satisfactorily.
Jeremy Bosk
Posted: 12 September 2012 15:07:24(UTC)
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According to today's FT, FC have just received £10m from American Venture Capitalists. Which might well be the kiss of death :-)
Funding Circle Raises Funds
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