Crowd2Fund Versus Funding Circle: Which Is Better?
Crowd2Fund was one of the first P2P lending sites to be granted full authorisation by the financial regulator. It does loans to small businesses paying 8% to 12% interest, which you can wrap in an IFISA to earn tax-free interest.
But is Crowd2Fund the best or is Funding Circle still the king of business lending?
Crowd2Fund is doing a good job
Crowd2Fund's* 17 oldest loans, totalling £1 million, have been running for at least 12 months and half of those for at least 18 months.
Like all Crowd2Fund's newer loans, none of its older ones have gone bad. The loans are paying around 9% interest to lenders.
Less than 0.25% of loans are running late and, historically, no late payments have turned into bad debts so far.
Comparing with Funding Circle
It is natural to compare Crowd2Fund to Funding Circle (FC), since FC is the biggest and most established business loans P2P lending site.
If you look at Funding Circle's highest-grade loans, namely A+ loans, that are between 12 and 18 months old, 30 in 1,000 loans are either late or have gone bad.
These loans are paying 8.1% interest before losses. Less than Crowd2Fund's 9%.
Funding Circle's results are excellent, especially as it has completed over 1,000 loans in that period. That is very low bad debt.
Crowd2Fund has started very well indeed. It has done far fewer loans and lenders shouldn't forget that, having completed less than 200 loans from the latest data we have.
Comparing Crowd2Fund to another competitor
But I believe Crowd2Fund's results are still meaningful. This is because, unlike Funding Circle, a larger part of Crowd2Fund's assessment of borrowers is decided by people in its team looking into the businesses in depth.
Funding Circle automates most of its borrower selection. That's not at all a bad thing. But the more personalised selection of borrowers gives Crowd2Fund room to be a lot more selective than Funding Circle's algorithm-driven approach.
I look at other similar unsecured P2P lending sites that are also a lot less automated than Funding Circle and see that, so far, it has become very clear, very quickly, if they are not selecting high-quality borrowers.
To give you an example, I will contrast Crowd2Fund with Rebuildingsociety*. Taking some of the oldest data 4thWay has on Rebuildingsociety to reflect an earlier part in its life similar to Crow2Fund's, at that time it had three loans out of 23 that were either late or had gone bad.
The difference between zero bad debts at Crowd2Fund and three bad debts at Rebuildingsociety, at this stage, might seem insignificant to you. However, small P2P lending sites doing unsecured loans are very agile in that they can be highly choosy of the borrowers they accept.
I think that to have any bad debts at this stage should be a disappointment if a P2P lending site is genuinely going for the highest-quality borrowers.
The experience so far shows that P2P lending sites that start badly continue badly, whereas those that build an early record, when they are small, of zero bad debts, go on to have better contained bad debts later on.
You can see that pattern emerging in the bigger picture already, by looking at all Crowd2Fund's loans rather than just the batch between 12 and 18 months' old.
Crowd2Fund has no bad debts and virtually zero late payments across all its loans, with its oldest loan being two years and eight months.
Rebuildingsociety, at the same time in its life, had a similar number of loans to Crowd2Fund, but 18 out of 156 loans were either late or had gone bad.
So is Crowd2Fund better than Funding Circle?
With Crowd2Fund now paying around 9.1% after fees and before losses wrapped in a tax-free IFISA, and Funding Circle targeting 7.5% after losses (currently not in an IFISA), which is better?
You can no longer choose just to lend in Funding Circle's A+ loans. You have to lend across its lower-quality borrowers as well, which suffer from more bad debts. But even there, it has a good record in the level of interest you can earn versus that level of bad debts, balancing out the risk of rewards.
And Funding Circle's biggest edge is its long history. The indications continue to look highly promising for Crowd2Fund. But, with unsecured business loans, most bad debts have generally hit within 36 months. Crowd2Fund's oldest loan hasn't even reached that age.
Is Crowd2Fund better than Funding Circle? If I had to choose one or the other, I would absolutely go for the one with the longer, deeper record. But, luckily, lenders don't have to choose just one.
The opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the FSMA and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
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