FUNDING Circle is scrapping its manual lending option for investors, changing its rates and updating its terms and conditions.
The ‘big three’ peer-to-peer lender said on Monday that it will launch an updated version of its autobid and autosell lending tools on 18 September, at which point customers will no longer be able to pick which businesses they invest in.
Funding Circle said that “many investors do not currently benefit from lending to all types of businesses” and that removing the manual lending option would ensure diversification.
“We want to ensure investors lending through Funding Circle have an equal chance of accessing all loans, and earn the best possible return,” it said.
73 per cent of new investors choose the autobid function, the company said.
It is scrapping its loan sale fee, which was previously 0.25 per cent, and the maximum size of new loan parts is now £100.
Investors will be able to choose one of two options. ‘Balanced’ invests in the full risk spectrum of Funding Circle loans and offers projected annual returns of 7.5 per cent after fees and bad debt. The ‘Conservative’ option invests in lower-risk businesses and is expected to deliver annual returns of 4.8 per cent after fees and bad debt.
The firm is adjusting its rates, effective from 30 August, so that the projected annual return for the Funding Circle loan book will be 6.7 per cent, an overall increase of 0.1 per cent. While lower-risk loans are expected to see their interest rates decrease by up to 1.6 per cent under the new terms, higher risk loans will see their returns increase by as much as 2.6 per cent.
“When reviewing rates, we take a number of factors into account, including macroeconomic trends, the expected mix of risk bands of borrowers, expected bad debt rates and wider competition in the market, which continues to be increasingly competitive for lower risk businesses,” said customer communications manager Jack Pritchett. “The new rates will allow you to continue to lend to established, creditworthy small businesses while earning an attractive, stable return.”
The platform has also updated its terms and conditions, effective from 18 September, in line with the roll-out of the new investment options. These changes include a restructuring of the layout and sections of the terms, to make them easier to read; a simplification of the language; a new description of how funds will be matched to businesses; a clarification of customer cancellation and termination rights; and a new set of circumstances where a borrower may be defaulted – for instance, if they have been abusive to Funding Circle employees.
The announcements come just two weeks after the platform re-branded with a “made to do more” motto.
“Since we launched Funding Circle in 2010, our aim has been to enable investors to earn attractive, stable returns by lending directly to small businesses,” said Funding Circle’s co-founders Samir Desai and James Meekings, in an email to existing customers. “Over the last seven years, 64,000 investors have earned more than £135m in interest, and an average return of 6.6 per cent, per year, after fees and bad debt.
“Recently, we have been reviewing how lending through Funding Circle works, with the aim of making lending simpler, better and fairer for all investors. After careful consideration, we have taken the decision to make some changes to your lending experience.”