Funding Circle change lending model

September 2nd, 2015
Funding Circle

Funding Circle, the leading peer-to-business provider in the UK, have announced that it is moving away from the current auction model for unsecured loans.  This will be replaced with a market with fixed rates per risk band per lending term, and lenders will have to choice whether to lend at the prescribed rate or not.  This would operate similar to the fixed rate lending on Funding Circle's secure loans.

Speaking to the P2P money website yesterday, David de Koning - Head of Communications at Funding Circle - explained that Funding Circle are competing with other financial institutions which can specify the interest rate early on, but the current auction system can only provide an interest rate after the auction has finished.  This means that lenders funds can be tied up during the period of an auction, only for a business to reject the rate after the auction has closed.

While virtually all of Funding Circle's previous loans have been funded, the variable has been the interest rate.  The new variable will be if the loan is funded by lenders at the rate specified.  RateSetter remain the only one of the big three UK peer-to-peer companies that allow lenders to set the lending rate.

Below is the statement from Samir Desai, CEO and co-founder of Funding Circle:

Since we first launched Funding Circle our goal has been to enable investors to earn attractive, stable returns and to help small businesses access finance quickly at a fair, transparent price.

Recently, we have been reviewing in detail how Funding Circle operates, with a view to providing an improved service for both investors and borrowers. We have found that the current auction model has significant drawbacks, which we believe can be improved to give investors and borrowers a better experience, and ensure the long term sustainability of the marketplace.

After careful consideration we have taken the decision to move to fixed interest rates for all loans within the next month. I appreciate this is a big change, which is why I wanted to write to you today.

What’s the challenge with the auction model?

The auction model has existed since Funding Circle first launched in 2010 - enabling investors to choose the interest rate they wish to earn and the amount of money they wish to lend.

Whilst I know many investors have enjoyed the auction model, there are a number of disadvantages with it:

  • Auctions tie-up investors’ funds: auctions typically last 7 or 14 days. During this time your money is not earning any interest and your bid may be knocked out by a lower rate. This means that investors may bid multiple times during an auction, with no guarantee their bid will be successful.
  • Confusing and complex to understand: many investors tell us they want a simple, easy way to lend their money. Auctions can be confusing and unattractive, especially for new investors.
  • Unattractive to borrowers: many business owners are put off by the lack of certainty around the cost of their loan.

How do fixed interest rate loans work?

Fixed interest rate loans are where Funding Circle sets the rate based on the risk of the loan and all investors achieve the same interest rate. We already operate fixed interest rates for property and asset finance loans.

The interest rate is based according to the risk of the loan, rather than the availability of investor funds. The rate is set before a business is listed and it is published on the marketplace for all investors to see. Rates will be set according to the risk band and the length of the business loan.

By setting the interest rate before a loan is listed on the marketplace, there is no need for the traditional auction. Loans will fund and be accepted by businesses more quickly, meaning your money is working harder for you.

Benefits of fixed interest rate loans

  • Simpler and easier to understand: if you like a business you can bid knowing your offer rate cannot be knocked out by other investors.
  • Your money works harder for you: by giving borrowers certainty of rate we expect businesses to accept their loans faster than they currently do, meaning your money is used more efficiently.
  • More businesses to lend to: certainty of cost means more businesses will apply to Funding Circle, creating more lending opportunities for you.

How will this change affect me?

We believe this move is in the best long-term interest for the Funding Circle marketplace. For the majority of investors, fixed interest rate loans will deliver a better service and higher returns. From our analysis, if the new fixed interest rates had been introduced at the start of last year, 71% of investors would be earning a higher expected return. To help plan for the launch of fixed interest rates, we are releasing the new rates to all investors today. these are attached below.

We have taken this decision in the interests of the majority of our investors and the feedback we have received has been positive. 90% of you have previously told us that you would increase or maintain your investment through Funding Circle if more fixed interest rate loans were introduced.

We recognise, however, there are a group of investors who actively use the auction model to earn above average returns, and who will be unhappy with this news and whose overall return is likely to drop as a result. We hope those affected will still consider that they can earn an attractive return at Funding Circle and continue to lend through the platform.

How can I provide feedback?

This is a significant change to how Funding Circle operates. We want to be open with all investors and provide the opportunity to ask questions before we make this change.

Below are details about how you can be involved in the process:

  • Investor evening: this will be held on 17 September and primarily focused on questions about fixed interest rate loans.
  • Webinars: we will be hosting regular webinars to answer your questions. We will provide further information about these on the blog, forum and in your weekly email newsletter.
  • Written feedback: investors can provide written feedback, found at our fixed interest rate webpage at

If you would like to join any part of this process, please email us at [email protected].

This is a big, but necessary, move to continue to build Funding Circle into a successful, mainstream business. I hope this letter provides you with further information behind this important change and we look forward to answering any questions you have.

Yours sincerely

Samir Desai

CEO and co-founder, Funding Circle

Funding Circle will be having another investor evening on the 17th September which will be focused on these changes, so lenders can quiz the company in detail.

Saving Stream offers "prefunding"

August 20th, 2015
Saving Stream

Saving Stream have launched auto-lending which they are referring to as "prefunding".

Here is the email which has been sent to all lenders:

We have a situation (a nice one we think) where demand is simply outstripping supply. There are a number of potential resolutions to this - control supply or the demand. We could either strip our margin by offering cheaper rates in the market or strip the rate that we pay to our investors. Neither of which are appealing.

If we strip our margin, this leaves the platform at risk in terms of covering any shortfalls and short of operating capital. However, by lowering our rates and increasing the number of loans we would maintain our strong operating capital, but risk/reward per loan needs to be considered from a strategic point of view. The other potential option that has been discussed is dropping the rates from 1% per month to our SS investors. We simply don't think this is plausible at the moment and we are trying to increase the number of SS investors significantly in order to scale the business so don’t expect that for the foreseeable.

We have a pipeline of over £7m at the moment, with more each day coming through. We are only advertising to a select few brokers and are only accessing a small slice of the potential market. We would also rather not do any loans, than do bad loans as we have said repeatedly.

So, how do we make everyone as happy as possible whilst maintaining as close to the KISS principle as we have tried to do so far?

Our solution for now is the pre-funding option which can be found under your 'Account' settings.

The Pre-funding Option


We want to give as many people the chance to invest as possible so we will provide an option to buy in before the loan goes live up to a self-determined limit. We want the smaller investors to be guaranteed a position in every loan, and the deeper pocketed investors will also participate at the same amount as everyone else. If there is spare capacity, the larger investors will pick this up subject to their pre-set investment levels.

This will also help us know how much is potentially available to lend out. This has been a continual problem that we just don’t know the exact appetite for our loan products and thus limits the number of loans that we can make.

How pre-funding will work?

1) Set your limit to invest in each new loan.
2) When a new loan becomes available, you will be guaranteed at least a portion of your investment amount if not all, depending on the loan size.
3) You will be notified of your participation and are expected to follow up with a bank transfer, much in the same way as normal.
4) You can sell your loan if you want.

Potentially complicated numbers stuff coming up…

For example  - you set your limit to £1k. There are 400 people who have the same limit and 40 with a limit of £10k. A loan of £1m is launched. All 440 people will get £1k (£400k total) and the 40 people with higher limits will get an additional £9k each in the surplus thus they get £10k in total. The remaining availability will go to the market and can be bought by whoever wants it.

It will become complicated when the loan is less than the amount in the Pre-Fund pot i.e £500k loan, 400 people with £1k, and 40 with £10k. Again, all 440 people will get £1k leaving £60k to divide by the 40 which is an additional £1.5k each, giving a total investment of £2.5k for those investors who set their limit higher.

Those investors with higher limits might be disappointed that they didn't get their full allocation, but they should be happy that they have participated in an equitable distribution model which should assist with the growth and opportunities available. The next loan might be able to take all of their demand plus more.

You won’t be able to review the loan parts or valuation beforehand (yet) but the secondary market is incredibly liquid and we are confident of the ability to sell your position if required.

Saving Stream prefunding

We hope this new equitable distribution model will allow all our investors a fair chance at participating in new loans.

Thank you for investing in Saving Stream.

Kind regards,

The Saving Stream Team

Crowdahouse relaunches as peer-to-peer

August 19th, 2015

Crowdahouse was founded by financial services and property professionals in 2012, creating the world’s first equity crowdfunded real estate investment fund.  Crowdahouse pioneered a method to navigate a complex financial regulatory framework unsuited to fintech purposes like crowdfunding.

The site has now relaunched as a peer-to-peer platform for secured lending to real estate professionals.

Here is the full press release:

Crowdahouse (, the global pioneer of equity based real estate crowdfunding in 2012, has relaunched as an asset backed peer to peer lending platform.  “We’ve been following the market closely since our original launch and have now created a far simpler model for our members,” said co-founder and CEO Gary Corben.

"The new Crowdahouse model is incredibly simple. Members lend money via a limited company and get security with a first charge over the property, just like a bank.

"We’ve found that most people want to profit from property without the headaches of ownership and our secured lending model clearly fulfils that need.  Apart from earning interest on their money, secured by a first charge, our members can also feel good about helping to provide more homes for families."

Crowdahouse co-founder Peter Lane added, “With equity-funded property transactions, the issues surrounding joint ownership, management and exit are highly complex.  We fear there will be severe investor disappointment in the future from equity based models."

“Our hands on experience in both residential property and financial services has enabled us to remove the key problem areas of crowdfunding, making the investment decision much more straightforward,” stated Corben.

“Unfortunately, there are a number of ventures that see entry to the business of property crowdfunding as easy, perhaps as simple as building an online platform. But understanding the complex legal issues, meeting regulatory compliance and the reality of actually managing the crowd in a property fund, is truly challenging."

Crowdahouse also has plans to expand its peer to peer lending base into retail customers.

The Crowdahouse Story

In 2012 Crowdahouse created the world’s first equity crowdfunded real estate investment fund - the Crowdahouse Pioneer Fund.  This was a truly innovative product allowing anyone to join a crowd and own investment property together.

However, in 2012 the Financial Services Authority were not ready for such emerging fintech models, and there existed regulatory risk in proceeding without clear FSA sign-off.  Crowdahouse co-founder Lane, who also ran an FSA-authorised firm, decided the risk to members was unacceptable.

“We wanted to protect our Members' interests as investors, which would have been impossible,” says Lane.  “We’ve witnessed the explosive growth of property crowdfunding in particular and with most of the founders of today's platforms having been original Crowdahouse Members and inspired by our innovation, we feel the time is right to re-enter the market, but with a revised model.”

Crowdahouse has now relaunched with a loan project to raise £500,000 (USD$790,000) to refinance an apartment block called Pullman House.  Lenders will get a 10% p.a. return for a 9 month term secured with a first charge over the property.

Crowdahouse borrower and professional property investor Lindsay Naylor says, “Being able to raise loans via Crowdahouse is going to help revolutionise my business and move it up a gear entirely.  The speed and flexibility of terms made it an easy decision.”

As well as relaunching with a revised peer to peer lending model, Crowdahouse is in talks with partners to expand its footprint to other territories as a matter of priority.

FundingKnight wins Best Online Peer to Peer Provider

July 17th, 2015

Hampshire-based alternative finance platform FundingKnight has been named the Best Online Peer to Peer Provider at the Your Money Direct Awards.

Your Money is a website which helps people get the most from their money with features, news and tips on investments, savings, retirement and financial planning.  The Your Money Direct Awards, now in their 18th year, are held each year to recognise the best direct providers of financial services in the UK.  The awards cover categories such as current accounts, ISAs, personal loans and insurance.  This is the second year that the Online Peer to Peer Provider category has been running.

The awards judging process evaluates the products of qualifying organisations based on the competitiveness of their price and structure.  A final shortlist is compiled which is then judged by a panel of mystery shoppers on criteria including user-friendliness, application process, clarity of information and overall price satisfaction.

FundingKnight’s CEO, Graeme Marshall, commented: “Quality and integrity have always been at the heart of FundingKnight and we have always strived to achieve the best results for both borrowers and lenders. This ethos has resulted in products that offer demonstrable customer value, and we are delighted that Your Money has recognised this achievement.”

RateSetter cashback offer

June 28th, 2015

One of the leading peer-to-peer companies in the UK, RateSetter, have announced a new cashback offer from 1st July for new and existing lenders.  New lenders are able to earn an additional £25 for signing up through the P2P money cashback site.

This has generated some discussions on the P2P Independent Forum which are an interesting read.

Here is the email send to existing lenders:

Unprecedented demand for borrowing has driven lending rates to very high levels, providing you an excellent return on your investment.

If that wasn't enough reason to invest more we are giving all our lenders the added incentive of cashback.

We've also listened to your feedback following our last cashback offer. To help you organise your additional investment, we're giving you plenty of time. The offer starts on 1st July.

Cashback offer:

  • Invest an additional £2,500 and earn £25 cashback
  • Invest an additional £5,000 and earn £50 cashback
  • Invest an additional £10,000 and earn £100 cashback

What you need to know

  • This offer is limited to a two week period, so don't miss out
  • You need to commit the additional deposited funds for at least 1 year to benefit from this offer
  • Please remember that your returns are before tax, assumes you reinvest throughout the term and assumes coverage from the RateSetter Provision Fund now standing at over £14m
  • Capital is at risk and your money is not covered by the Financial Services Compensation scheme

Here are the full terms and conditions:

  1. Offer valid from 00:01 on 1st July 2015 and ends 18:00 on Tuesday 14th July 2015.
  2. Lending orders not completed before the deadline will not be eligible for the offer.
  3. In order to be eligible for cashback, the additional funds must be committed to a lending term of 1 year or longer.
  4. Maximum cumulative cashback per customer is £100.
  5. We will credit your account with the cashback bonus within 28 days from the end of the promotion.
  6. Cashback can be used for lending or can be withdrawn.
  7. Sell-out requests made during the promotional period cannot be reinvested in order to receive the promotional bonus.
  8. Contracts repaid during the promotional period will still be valid for the promotion.
  9. The member-get-member promotion can be used in conjunction with this cashback offer so feel free to introduce a friend to RateSetter and you can both benefit.
  10. RateSetter reserve the right to retain the cashback earned in connection to a Sell-out request during this promotion.