Funding Circle

DeanMB

I'm looking for something a bit more profitable and involving than leaving my savings in FlexDirect Accounts. I've always liked the idea of investing in businesses, but never dared to try with stocks. Looking into websites like Funding Circle, this seems like a nice way to cut my teeth. I just have a few things that I want to clear up.

With the rate, is that the monthly rate that I get, or is it the rate over the entire term? For example, if a request says 10% with a term of 60 months, is that 10% per year for the following five years, or is it 10% on my investment that will be repaid over the following the five years?

Secondly I want to look at tax. How is this done through Funding Circle? I see that they're a government scheme, so is it all returned on its own, or will I need to do it a bit like a regular tax return?

Archi_Bald

DeanMB wrote: »

I see that they're a government scheme,

Are they? How?

DeanMB

Archi_Bald wrote: »

Are they? How?

Maybe scheme was the wrong word then, what I was getting at is that the government are also investing in the businesses.

Basically what I'm saying is do FC take tax off your interest, like banks such as nationwide do, or do I have to declare it myself?

EDIT: Nevermind, I've found the answer.

ChesterDog

Be very mindful of the risks, in spite of director 'guarantees' and so on. I lend on Zopa and Ratesetter. Zopa used to have Listings, where you could read up on individual borrowers' applications and judge them for yourself. I liked Listings and did very well on them, but many people got badly burned by them because they liked the borrower's story, or generally misjudged the risk.

Companies needing money are a risky area. Many times I have been tempted by Funding Circle, but I always seem to have decided against in the end.

Best of luck, though, if you go ahead, but do be careful and hard-headed.

brendon

You won't be expected to fill a self assessment for really simple tax affairs. If you just have to declare interest from Funding Circle/ZOPA, you can just declare this in a letter and it's then up to HMRC to bill you the correct amount.

citymike1989

DeanMB wrote: »

I've always liked the idea of investing in businesses, but never dared to try with stocks.

Hi, what kind of apprehensions to you have with regards to stocks and the markets in general?

With the right plan and structure in place, you can put yourself in a position where you could see a potentially great return on investment.

Ologhai

Mostly, I would say that lending to individual businesses is a pretty risky affair. At present, the economy seems to be vaguely looking up, so perhaps the number of firms defaulting on their Funding Circle loans is relatively low for the moment. However, if the wind changes, businesses (especially smaller ones) going bump might be a not uncommon occurrence.

That said, I've had an FC account for the last few months with a smallish amount of money in it just to play and to see what it is like.

In my case, I've so far hand-pick all of the companies I've lent to after checking their details and (especially) their replies (or lack thereof) to other potential lenders' questions, although it's hard to imagine this amount of effort is most people's idea of fun. I'm not sure I'd just want to turn on auto-lend (or whatever they call that feature) and forget about it, though.

Whatever you decide, good luck!

Wilkins

I've been in FC almost from the beginning. Currently I have about £13k invested earning around 7% after bad debts and fees but before tax. Since I do a tax return online, I've never found it a problem to just report the figures.

When I started I used to evaluate all the companies individually but switched to autobid about a year ago, since I didn't feel the time involved was warranted. I expect the default rate to rise and my effective return to reduce to around 6% over the coming year or two, but I'm happy with that.

mikb

DeanMB wrote: »

what I was getting at is that the government are also investing in the businesses.

The government are blindly (without research or favour) putting 10% (was 20%) up of every auction that goes to completion. This is not a gov't endorsement, just a way to disburse some of that funding-for-lending cash they've been throwing around.

As to tax, that's between you and HMRC to sort out.

Interest is paid gross, and you are expected to declare it -- it can be done with a simple letter to HMRC explaining the situation and including figures (FC will generate an end-of-year tax statement shortly after April 5th).

paddyrg

Be aware - with the press around peer lending and the low bank interest rates, there are lots of people jumping in blind. When you could read the listings on zopa for instance, people were competing to throw money at low interest rates at some really poor bets. The interest rates available to even compete in those markets were therefore often not high enough to justify the risk.

For hypothetical instance an odd-job man wants £30k for a new van - earning potential is fair, potential for default high (say he gets ill), and a secondhand van would probably be more appropriate to his turnover levels, banks didn't want to lend to him, but private peer investors would routinely undercut bank rates.

When the banks don't think something is a safe investment (and lending money is their whole purpose, theoretically at least, before QE skewed things) you have to question why based on their centuries of experience.

That said, I have had a couple of grand in ratesetter for a few years and you don't even get to know anything about the borrower - but they do have a partial safety blanket of a bad debt fund. The monthly market rates on there though have dropped from ~4% to ~1.5%, dramatically less than I get in my Lloyds Vantage current account with all the legal protections of being in a proper bank!

DeanMB

Wilkins wrote: »

I've been in FC almost from the beginning. Currently I have about £13k invested earning around 7% after bad debts and fees but before tax. Since I do a tax return online, I've never found it a problem to just report the figures.

When I started I used to evaluate all the companies individually but switched to autobid about a year ago, since I didn't feel the time involved was warranted. I expect the default rate to rise and my effective return to reduce to around 6% over the coming year or two, but I'm happy with that.

What kind of rates are you putting your money in for then?

I've seen a few requests for 12% etc, that's the only range I'd be looking at, as I'm getting 5% on my cash at the minute anyway.

These are obviously high risk (C-), so would I be better using the option to buy existing loan parts, where I can see evidence of loan repayments being made reliably?

Thanks.