Funding Circle: Safe Investment Or Risky Business?

Funding Circle is a commercial lender that connects investors with small and medium-sized businesses seeking loans. It offers competitive rates, a streamlined application process, and multiple loan options. However, it has faced criticism for its high fees, low transparency, and long exit times for selling loans. With a minimum credit score requirement of 660 and a minimum investment of $25,000, Funding Circle caters to established businesses with good credit. While it provides a fast and easy alternative to traditional bank loans, there are other online lenders that offer faster funding times and more flexible qualification requirements. So, is Funding Circle a safe investment? The answer depends on your risk tolerance, investment goals, and the specific needs of your business.

Funding Circle's competitive rates and quick funding

Funding Circle offers competitive rates for online term loans. The company provides small-business loans ranging from $25,000 to $500,000 in the US and £10,000 to £500,000 in the UK. Funding Circle's annual percentage rates range from 4.5% to 12.1% per year, with no prepayment penalties. This means that borrowers can save on interest costs by paying off their loans early.

In addition to competitive rates, Funding Circle offers quick funding to eligible businesses. The company's application process is straightforward and can be completed online in about 6 to 10 minutes. Funding Circle also provides a quick turnaround time for loan decisions, typically within 24 hours. Once the loan agreement is signed, borrowers usually receive their funds within one to three business days.

The speed and convenience of Funding Circle's loan process make it a popular choice for small businesses. The company has successfully lent to over 143,000 small businesses in the US and UK, totalling more than more than $20 billion in financing. Funding Circle's customer reviews highlight the ease and speed of the application and funding process, as well as the competitive interest rates offered.

However, it is important to note that Funding Circle's borrower qualifications are relatively strict. To be eligible for a loan, businesses typically need to have been operating for at least two years and meet certain credit score, revenue, and industry requirements.

High qualification standards for borrowers

Funding Circle is a commercial lender that offers small-business loans of up to $500,000. These term loans can be a good option for established businesses that want competitive rates and fast funding. However, Funding Circle has high qualification standards for borrowers.

To qualify for a Funding Circle loan, you must have been in business for at least 24 months and have a minimum credit score of 660. The average Funding Circle borrower has been in business for 11 years and has annual revenue of $1.4 million. In addition, business owners cannot have a personal bankruptcy within the last seven years.

Funding Circle also requires a lien on business assets, which may include equipment, vehicles, or inventory. The lender also requires a personal guarantee from the primary business owners, giving Funding Circle the right to pursue personal assets if the business fails to repay the loan.

These qualification standards are relatively high compared to other lenders and may be difficult for some borrowers to meet. However, they help ensure that only established and creditworthy businesses can borrow through Funding Circle. This can provide some reassurance to investors that their investments are relatively safe.

Funding Circle's strict borrower qualifications also put it in direct competition with traditional banks. Qualifying businesses may be able to get a better deal from a bank if speed is not a concern. However, Funding Circle's application process is generally faster and easier than that of a traditional bank.

Not suitable for new businesses

Funding Circle is not suitable for new businesses. The company requires at least two years of business history, and its borrowers have, on average, been in business for 11 years. This is a much higher qualification standard than some other lenders.

Funding Circle also requires a minimum credit score of 660, which is higher than some other lenders, who accept scores of 600 or lower.

In addition, Funding Circle requires a lien on business assets, which may include equipment, vehicles, or inventory. The company also requires a personal guarantee from the primary business owners, which gives Funding Circle the right to pursue personal assets if the business fails to repay the loan.

Funding Circle is, therefore, not a suitable option for new businesses.

Funding Circle's streamlined application process

Funding Circle is known for its streamlined application process. The entire application process usually takes five days or less.

To apply for a Funding Circle loan, you must first complete an initial online application to see if you are pre-qualified for a loan. Funding Circle does a soft check of your personal credit for the initial application. Once pre-approved, you will be given a quote with an estimated interest rate. A Funding Circle representative will then call to discuss your quoted loan options and answer any questions.

Next, you will need to provide additional documentation and information about your business. If your business is organised as a general partnership, Funding Circle will do a hard credit check at this point, which may affect your credit score. However, a hard check is not required for most applicants.

The required documents include:

• Two years (most recent) of business tax returns
• One year (most recent) of personal tax return
• Six months (most recent) of bank statements
• Business debt information

Once you have had your consultation and submitted all the appropriate documents, your application will go through underwriting. Within a day, Funding Circle will send you an offer, including your interest rate and origination fee. You will receive your funds within a few days if you accept the offer.

The application process is straightforward and easy to complete, according to customer reviews.

The risks involved in investing

Investing in small business loans always carries risk. Returns depend entirely on payments received as business owners repay their loans. If a business is late on their payments or defaults on their loan, returns will be late or reduced. It is important to remember that some businesses will not be able to fully repay their loan.

To earn a more stable return, Funding Circle encourages investors to build a diversified portfolio by splitting their investment into many small pieces. Auto Invest makes this easy to do, allowing investors to relax as they invest in financing many different businesses.

Every loan is secured by the non-real estate collateral of the business and Funding Circle requires significant proprietors of the business to provide a personal guarantee. Collateral can include equipment, vehicles, accounts receivable, and inventory.

However, a personal guarantee or any form of security does not ensure a full recovery of outstanding debts will be made if a loan defaults. There may be instances where no recovery can be made.

Funding Circle's collections and recoveries team pursues every single late or defaulted loan to recover as much as possible. They use a variety of methods and technologies that analyze the specific financial situation of each borrower to maximize recovery.

When a loan defaults, the investor's account will show a total loss of principal. However, Funding Circle's team will continue to work to make recoveries, so it’s worth remembering that the amount “lost” on recent defaults may improve over time.

Frequently asked questions