Chris Alexander

On Engineering

Funding Circle

Online investment platforms

10th February, 2018

Over the last few years, a number of online investment websites of various types have been popping up. The mix of financial hub and technology startup hotspot that is London has produced a few, and a few have made their way over from America.

Important note these articles will focus on the websites and how they operate as described by the sites themselves, and won’t include discussions of their performance or returns. All of these sites are investment products and you may get back less money than you put in. You should familiarise yourself thoroughly with the websites before using them. No part of these articles constitutes financial advise, nor should they be taken as such.

I have been trying out a few of these sites to see how they work, and I thought I would write up about each of them. The first that we tried is FundingCircle.

FundingCircle works by lending money to UK small businesses for various loan purposes. These include loan refinancing, expansion, and other purposes. Once a business has been checked by FundingCircle and their repayment terms chosen, investors are automatically matched to fulfil the loan. Then for each repayment, the investors are given back their money plus interest over each month of the repayment period.

The one issue for people getting started with FundingCircle is that the recommended minimum investment is £2000, and the permitted minimum is £1000. This is because FundingCircle reduces risk to each investor by allocating only £20 of each investor’s money to each business; this means if you invest £2000 then you are loaning to 100 businesses, therefore if a loan goes bad then no more than 1% of your investment is exposed.

Should a loan be defaulted on by the business, then FundingCircle will work to recover the money and credit back investors as much as possible, a common feature with these platforms.

What’s cool about FundingCircle is watching your deposit gradually become matched with loans, and you can also see an itemised list of which business loans you are invested in, and read a bit about them.

In terms of withdrawals, you can either turn off the auto-reinvestment feature so that you can withdraw as loans are paid back each month, or you can also use an automated system to sell your loans to other investors. This will only be able to go through if FundingCircle is able to find other investors to purchase the loans (in fact some of our initial loans were repurchases such as this).

In general the FundingCircle website itself is pretty good, nice and clear what’s going on and easy to understand charts. These websites are generally reasonably simple in that you just have to make deposits and withdrawals and basically everything else is automated. Most of the work is around showing investors clearly what their money is doing and how much it’s currently worth, which FundingCircle does well. I haven’t had to use their support yet, as everything has operated clearly and smoothly, which is very reassuring when they have a chunk of your money!