Funding Circle Review
4thWay's Quick Expert Funding Circle Review
A very strong history, although with recent signs for caution
When did Funding Circle start?
Funding Circle has a history measured in billions of pounds of loans stretching back to 2010.
What interesting or unique points does Funding Circle have?
Funding Circle has highly experienced former bankers, underwriters and credit-risk experts, and it has demonstrated very satisfactory borrower selection processes. It is the largest P2P lending site that does smaller loans of up to five years to small- and medium-sized businesses.
How good are its loans?
Funding Circle probably has good quality loans, but it no longer provides enough information for us to assess them.
Funding Circle review: lending processes
Funding Circle has historically shown itself to be excellent at evaluating borrowers and learning from the large amount of data it has collected on tens of thousands of them. It has also previously demonstrated that it is good recovering bad debts, performing somewhat better than average for these kinds of loans.
How good are Funding Circle's interest rates, bad debts and margin of safety?
We used to praise Funding Circle for its openness in sharing details about its business, which used to include “sharing the fine detailed history of each loan over time”, which allowed us to assess its performance using both bank risk modelling and investing techniques.
However, Funding Circle withdrew this information in spring 2018, which leaves a big question mark over its future. In many ways, withdrawing data that it used to provide causes me more suspicion than if it had never allowed its users and analysts to see the data at all.
Without that data, Funding Circle is no longer able to earn 4thWay PLUS Ratings or 4thWay Risk Scores on its lending accounts.
Funding Circle has demonstrated that it understands and contains the risks when approving loans, and it has historically priced interest rates well. Since we now get less information and since expected interest rates have fallen considerably, we can now no longer be sure whether it offers a large margin of safety in the event of severe economic disasters.
Is Funding Circle profitable?
Funding Circle has been losing money, but, in a new, growing industry most businesses are loss-making, so we must distinguish between those with “healthy” and unhealthy losses. This professional, established business, backed by strong investors that put in an extra £82 million in 2017, has been growing its sales rapidly and has a strong brand, which puts it firmly on the healthy side.
What is Funding Circle's minimum lending amount and how many loans can I lend in?
If you lend at least £2,000 you will lend across at least 200 borrowers, which is appropriate for these loans. It is not uncommon in these kinds of loans for a significant minority of lenders to see their lending returns take an early hit as bad debts arise, but over time the interest you earn and the recoveries on bad debts will prove sufficient for the vast majority of lenders, so a bit of patience is required.
Does Funding Circle have an IFISA?
Funding Circle's lending accounts are available as IFISAs.
Visit Funding Circle.
Independent opinion: the opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, 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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