Review of Funding Circle

Written by Demetrius Vouyiouklis

I joined Funding Circle (FC), an online peer-to-peer lending platform where investors lend funds directly to small businesses, in October 2017. I started with a small sum, to ensure the lending pathway worked correctly, then fed different amounts, as they became available, into the FC system at various times over the next few months.

I quickly realised that there was a pattern: first of all, once transferred from my bank account, my money did not appear into my FC account for at least 48h and it then took approximately 1 week for £500 to be fully invested – both these delays meant that my money was not starting to work as quickly as I would have liked it to and that I should not invest more than about £500/week.

FC offered me 2 risk-types of investment setting, cautious (Conservative in FC parlance) and more adventurous (Balanced, according to FC), with projected returns of about 4.5 and 6.0%, respectively. Although I initially chose the cautious option, I soon went over to the more adventurous option, thinking that I was taking risks anyway (not being Financial Services Compensation Scheme covered and lending to riskier-than-average types of businesses) for a potentially better return, so why not go all the way.

It has taken me a while to realise that the reason for the slow uptake of my deposited funds (approximately £500 per week) could be related to FC spreading my risk in amounts (Loan Parts) of, on average, £30 to different businesses, so that my total risk to a single business does not exceed 0.5-1%. This was in agreement with my own trickle-feeding strategy.

In addition, according to the FC graph representing 1 year of investing, a minimum investment sum of £2,000 is required to achieve both sufficient diversification and stable returns.

To withdraw funds, it’s first necessary to sell your loan parts to other investors – however, no fees are charged for either selling or withdrawing. As I am still building my investment with FC, I have not yet tested this. It is unclear how quickly one may sell their holding, which may well depend on the state of the economy/market at the time.

So far, I have been investing with FC for 3 months and been achieving a pre-tax return of 7.5%.