Funding Circle is a peer to peer lending platform where investors can lend money to small-to-medium sized businesses. Founded in 2010, Funding Circle has grown into the largest UK peer to peer lending platform focused on business lending and has expanded globally.
Risk and Security
The principal risk is a large number of borrowers default on their loan commitments. This may reflect poor economic conditions or Funding Circle’s credit sanctioning. Diversifying across a wide range of borrowers is the principal method of mitigating risk offered by Funding Circle. Funds are split into £20 chunks, so if £2,000 was invested, 100 businesses would be lent to, achieving 1% exposure per loan.
The Funding Circle collections team will pursue any missed payments. If a business ceases trading and has a personal guarantee attached, Funding Circle Trustee Limited will attempt to recover the maximum amount possible as a creditor of the business.
To withdraw invested funds, investors must sell their loan parts to other investors on the Funding Circle secondary market. Funding Circle charges 0.25% to sell any loan commitments on the secondary market. If investors wish to sell quickly, they may offer a discount of up to 3% to new investors.
Funding Circle has put in place arrangements to ensure investors continue to receive payments, as well as any uninvested cash sitting in their client account, should Funding Circle become insolvent. Funding Circle would transfer the servicing of loans to a third party service provider. Any funds sitting in cash are held in a segregated client account and can be transferred to the investor at any point. For more, read Orca’s Funding Circle review.