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Funding Circle stops investors making loan choices

Peer-to-peer lending platform will no longer allow investors to choose which businesses to lend to and will spread their cash across a portfolio of companies.

Funding Circle stops investors making loan choices

Peer-to-peer lending platform Funding Circle will no longer allow investors to choose which businesses to lend to and will instead spread their cash across a portfolio of companies.

Funding Circle, which has loaned £2.5 billion to small businesses since launch in 2010, says it will no longer allow ‘manual investing’ where investors choose which companies they wanted to back.

The platform said there were ‘some drawbacks’ to investing in this way, with investors finding the options confusing and the process unfair as some investors struggled to access the businesses they wanted to lend to.

‘Many investors do not currently benefit from lending to all types of businesses,’ the lender said in an update. ‘Currently some investors find it difficult to access [the most popular loans]. We want to ensure investors lending through Funding Circle have an equal chance of accessing all loans, and earn the best possible return.’

Manual investing also means that investors are not spreading their money across a range of business and are ‘not fully diversified and are at risk of having a negative lending experience’, the company said.

The new investment strategy will see investors’ money pooled and invested across a variety of loans, following in the business models of rival P2P platforms RateSetter and Zopa.

Investors will be able to choose one of two new lending options based on their risk preference.

A ‘balanced’ portfolio will lend to a range of businesses with credit ratings between A+ and E. Funding Circle estimates its projected return will be 7.5% a year after fees and bad debt.

The second option is a ‘conservative’ portfolio that will invest in businessed with higher credit ratings of A+ and A. Its projected annual return is said to be 4.8% after fees and bad debt.

The changes will affect new lending from 18 September and after this date investors will only be able to select one of the two options.

Currently investors who loan money regularly through the platform’s ‘Autobid’ facility will be automatically transitioned into one of the portfolios based on their current risk settings.

‘We will email you separately by 25 August to let you know which option we plan to transfer you to. If you don’t want to be transferred over to a lending option, you can pause lending by logging into your Funding Circle account and turning Autobid off,’ said the lender.

Those who do not use Autobid will be forced to choose a portfolio option before being allowed to continue investing, Funding Circle said.




4 comments so far. Why not have your say?

Stephen B.

Aug 26, 2017 at 18:57

So this is no longer in fact peer-to-peer lending, it's investment in a fund managed by Funding Circle - and regulated how?

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Walter Plinge

Aug 28, 2017 at 12:48

The question about regulation is very much to the point. In effect this change makes Funding Circle a bank, as it alone will decide who borrows the funds and on what terms. Surely then it requires both PRA and FCA regulation.

It also turns lenders into buyers of asset-backed securities. The only choice will be between lower risk or full-spectrum risk. That isn't what I signed up for. As a result, I will stop new lending, and I'll withdraw my funds as they are repaid.

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Aug 29, 2017 at 17:23

@Stephen B Interesting point - I suspect they are arguing that investors are still holding bits of the individual debts - it's unlikely to be a compliant unit trust at this stage. The two further issues are that its starting to feel like a mini-me version of the CDOs that caused all the trouble back in 2007, and that you can no longer take an active stance in supporting business that benefit the environment or similar. I suspect it will lose some of its appeal as a consequence.

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Sep 27, 2017 at 07:43

I, for one, am unhappy with the direction Funding Circle is taking. I believe that I invested my money in an ethical manner in companies that I wished to support and that I felt were financially sound companies to invest in. Now, as stated here, it is now a managed fund. It may be still offering 7.5% return, but I am taking my money elsewhere. It is my money, to invest where I want to invest it and my risk to do so. I suspect that I am one amongst many.

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