The Loan Exchange – A Step by Step Guide

stock exchange

So you have chosen to invest your money into FundingKnight’s peer to business lending scheme. Congratulations!

But now what to do with it?

There are a few choices for the uninitiated to make when investing in FundingKnight loans, such as which company you want to get behind and lend to, how much you want to lend and lastly the method in which you lend.

The first two choices of who and how much are fairly self explanatory but the method of how you lend is an interesting one.

Investors have two choices. You can bid on current new loans where you’ll be bidding in a reverse auction against other investors with the lowest bids – in terms of the interest rate you offer to lend at – being accepted to form the final loan.

The alternative lies in The Loan Exchange. This investment is no longer a live auction but rather, if we look at it in terms of those well known online auctioneers, ebay, a “buy it now” option.

And the process is ridiculously simple. Register as a lender on FundingKnight and deposit an amount of cash that suits you and your investment needs. You are now a bona fide lender and head straight to the my money page. You’re getting close…

   My Money

Now it’s time to choose the business and loan you want to invest in. Head to ‘Find a Loan’ and expand The Loan Exchange option.

You’ll find lots of different loan parts available to choose from.  These are investments that existing FundingKnight lenders already hold but are choosing to sell on, perhaps to release their cash, or perhaps just to spread the investment across more loans ad diversify their portfolio.  Some will be small parts, say £25, others will be much larger, say £1,000 or more.

Choose the loan part you would like to buy.

the loan exchange

Click on ‘Tell Me More’ and everything you need to know about your prospective loan terms, returns, business information, turnovers, financial history and more is there to read in clear, jargon free plain English.

Loan details

And this is where FundingKnight comes into its own: it’s a simple and clear process, user-friendly and quick. Any questions you might have will be answered here but if you need to know more then FK are more than happy to get back to you with further information.

Then one you’ve chosen and done your research (and providing you have enough funds in your account!) it’s a one-click process, just “buy now” and submit. Success! You are now a peer to peer lender!

So why would you want to “buy it now” rather than bid on a loan?

Even to a newbie like me, there are some clear advantages that might make you opt to “buy it now” rather than bidding. Clearly the danger of being outbid is removed and the process is quicker – and we like quick. Also, even if there are aren’t live loans online available to bid on, there will always be loan parts available to purchase on the loan exchange. Sometimes time is of the essence and a one click process is all you have time for.

Another plus point is that it helps you spread your investment and diversify your loans and that keeps it interesting – as well as spreading out your investment to reduce the risk that one bad loan will wipe out the returns on your whole portfolio. It also allows you more flexibility as you are able to invest in past loans that have already come and gone, no matter when you registered as a lender.

The loan exchange also lets you choose shorter term lending periods as some of the loan has already been paid off, leaving less time for the rest of the loan to run. This allows your money to go in and out faster than it might if you bid on a current loan.

Sometimes, it might even be cheaper. Because the investor selling may want quick access to their cash, they might offer it at a discount and everyone loves a bargain right?

And for those who may be slightly impatient (and I count myself in this!) you won’t have to wait around for your cash to start earning interest. No need to wait, get involved straightaway and start to see some returns as soon as possible.

You can find out more about becoming a FundingKnight lender here or click on the Katie’s crowdlending journey to find out more about my adventures in peer to peer finance.

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Katie’s crowdlending journey: Can current savings rates beat inflation?

penny jar

In October 2012 inflation, as measured by the CPI (Consumer Prices Index) index, rose from 2.2% to 2.7%. The increase was not anticipated by many and has therefore caused a mild kerfuffle, if you will, in financial circles, let alone to your average ordinary FundingKnight blog subscriber reading this now…

The reason behind the mild horror that has ensued as a result of the CPI announcement is due to the financial repercussions of said increased inflation on the economic health of UK savers.

So, for example if you, YES YOU, are a basic UK taxpayer, contributing 20% of your earnings to the lovely HMRC, you will now need to find a savings account that offers an interest rate of 3.37% (according to moneyfacts.co.uk) which, in this day and age of pretty pathetic savings options available on the high street, is nigh on impossible.

Well, I lie, it’s not wholly impossible but still fairly hard to achieve. Research offers the following statistics: 52 out of 2532 banks would be able to offer basic UK taxpayers an inflation beating savings account. That’s 2.1% of everything out there folk (State Bank of India anyone?) and that sounds to me like a fairly sad state of affairs for people looking for a sound return on their hard-earned cash stash.

Equally, if you are a higher rate taxpayer, lining the pockets of the taxman with 40% of your salary, then you would need to seek out a savings account that paid out nearly a whopping 4.5% interest rate in order to beat that darn inflation index and this is, in fact, actually impossible. At this time, as I type, there are no non-ISA accounts in existence that offer these rates.

A proper UK based savings sob story no? Well yes it really is, so here’s one final sum of misery from The Daily Telegraph money pages to send you on your way and then lets all go on a spending spree:

“The impact of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20pc, would have the spending power of just £8,899 today.”

Food for thought, for sure. I would love to hear your comments, suggestions or top tips.

Who does FundingKnight lend to?

As a complete beginner to the world of finance and loans, I am going back to basics again with this post. I want to get right to the very core of what FundingKnight can offer businesses looking for a loan.

Looking at the FundingKnight website, it seems like a very straightforward process but in my mind there must be huge amounts of criteria that you would need to meet before even beginning to think about applying let alone the actual paperwork that organising a business loan must entail.

I am endeavouring to find out more, so I asked FundingKnight a few questions about what their basic principles were behind their lending offer.

FK: We specify the following three points for companies looking to borrow money from us:

  • The business must have at least two years trading history
  • They must be limited companies registered at companies house
  • And finally, they must be UK based businesses with a UK bank account

KK: It all sounds pretty reasonable to me and extremely straightforward, but there must be more things to consider beyond approaching FundingKnight as a legitimate business enterprise? Surely you would want to ensure that you are investing in something that is a sound prospect with a solid financial future? As otherwise couldn’t any old debt ridden business be able to approach yourselves in dire straits?

FK: Yes, that’s completely true, lenders come to FundingKnight to get a good financial return and in our approach, there are three key things we look for and to balance applications against, ensuring we lend to the right companies:

  • Is your business well managed?
  • Are you realistic about risk?
  • Will your business generate enough cash to repay our lenders?

KK: Ah ok, that’s more like it – still, it seems very simple and straightforward and basically clear, common sense which has got to be a good thing.

FK: Yes, we think so and we want to make the process as clear and easy as possible as after all, we want to lend money in the same way that businesses wish to borrow money. It’s a win-win situation!

Many of our lenders also want to give the economy a boost and no doubt as FundingKnight grows many will also use it to lend locally but first and foremost people expect a sound return on their money so it’s important to have some good ground rules governing who can apply.

KK: So you don’t offer loans to start-ups?

FK: No we don’t. That’s not intended to suggest that start-ups aren’t a good investment – some are – it’s just that they typically need a different type of funding and benefit from a different type of investor.

KK: Excellent work. Thanks to FundingKnight for idiot friendly responses and I hope that my ignorance will help other people get involved and take advantage of the clear benefits that FundingKnight offer.

The Low-Down on Business Investment

I am lucky enough in my work environment to encounter lots of people starting new projects, creating new businesses and generating ideas for future developments. A creative environment will foster and nurture these progressions like no other. Start-ups are springing up all over and I don’t believe there has ever been such an exciting period in independent business growth as the one we are experiencing now. Exciting times eh?

So while I am continually inspired by new ideas, I am slightly lacking in the fundamental knowledge of how these things work, how start-ups are funded and what opportunities are out there for newbies like me.

One of the key factors I have been learning about of late (thanks to the FundingKnight blog post Crowdlending vs. crowdfunding…what’s the difference and what does it matter? amongst others) is the difference between debt and equity for businesses.

To the uninitiated here’s a brief definition as far as I can see. Crowdlending is a means to borrow money, get a business loan and get a cash injection for a viable new business plan or proposed expansion. Within this borrowers would also set up a repayment plan.

Investors providing the money for loans will receive a return higher than that of an average high street bank savings account. They will have no say or input into how the business is run, what they produce or its end results. Its very cut and dry.

Crowdfunding on the other hand is, as I now understand it, equity based (I’m learning! It’s fun! Join me!). Which means you invest in a project or business that you like and believe in or something that simply catches your interest or passions. In return lenders have a vested interest in something they admire and also have a stake or share in the business or project which essentially means they have a say in how it is run and how it will develop in the future. Money is invested with no strict repayment plans as you would with a business loan.

So now the differences have been established in my head it is beginning to make sense. In reality if I was looking to borrow some money for a fabulous business I would want a business loan, looking to crowdlending and a formalised repayment set-up. Why? Because as a small business with big ideas and plans I would want someone to lend me money without having to contend with another person’s potentially different agenda.

Loans from crowdlending companies such as FundingKnight are invaluable and can truly change the innovative business landscape around us as we leave the creative forces at large in the world to keep coming up with the big ideas, whilst still providing investors with solid returns on their money. It all adds up to me plus don’t forget about the warm and fuzzy glow that comes included, free of charge, to anyone who wants in. Now where do I sign up?

FundingKnight Likes… Brixton Pound

Recently I wrote about the newly launched Bristol Pound and why we at FundingKnight were fans of this community orientated and hyperlocal currency.

The Bristol Pound is one of few other similar projects taking place around the UK so we thought we would write about one of the first and the original urban scheme, the Brixton Pound.

In the same way as other local currencies, the Brixton Pound was designed and implemented to keep investment and spending in the local area.

By exchanging your run of the mill ordinary sterling into Brixton Pounds you can spend your hard earned cash in a plethora of Brixton businesses helping them to increase their profits.

It’s simple, you invest in your community and as a result your local area improves. It not only allows you to help grow home-grown businesses but also, if you use your B£ electronically, you get an additional 10% spend on your British Pound, thus making your money go farther with an added value local bonus.

One recent additional string to the currency’s bow is that if you work for Lambeth Council (where Brixton is located) you can now request to have a percentage of your wages paid in Brixton Pounds. A fabulous idea that really shouts it support to the civic scheme. Plus staff opting for this will receive the additional 10% bonus on their pound, essentially giving staff a pay rise well above the average local government salary increments.

Lambeth Council workers will also have the option to donate their monies directly from their wages to local charities, community groups and social enterprises of their choice.

By starting schemes like the Brixton Pound and others it allows local neighborhoods to take control of their communities and maintain the fantastic vibrancy and creativity that is unique to their area. In turn positivity breeds positivity, improving lives and environments whilst generating a powerful multiplier effect that extends and creates opportunities for more and more people every time a B£ is spent. That alone is more than reason enough to like, if not love, the Brixton Pound. Get involved and find out more here.

A simple guide to peer to business lending: Timescales and security…

So I’m beginning to understand the basic processes and some of the jargon behind crowdlending. As a complete beginner to all this, its not actually as complicated as I first thought.

Last time we established it wouldn’t cost me anything to lend money and invest into FundingKnight. In fact by investing, I would hope to see some returns on my investment. There are no fees to become a peer-to-peer lender and I can set my own interest rates for those to borrow against. On the other side of the process, as a borrower, I would expect to pay between 7 – 12 % interest on a loan I take out plus their arrangement fees (check out www.fundingknight.com for full details). So far, so good. Learning is good.

Now what about timescales? If I lend to FundingKnight, how long would I need to invest my money for? Is there a set amount of time? Or can I access my cash whenever I need it? I asked the bigwigs for some answers…

FK: Our loan exchange will let you sell all or part of your investments on to other people.  So that means you get to combine the benefits of making your cash work harder (than it typically would in an easy access savings account) with access to your money – selling your loan can help you get at your cash if you need it.

KK: so I can basically forward my investment onto someone else and get my money back if I need it. What about security? With all the crazy happenings of the past four years, would my money be protected against an unpredictable market?

FK: The Key difference between crowdlending and bank or building society accounts is that there is no safety net so, however successful crowd lending becomes it will never be the same as putting your money in the bank.  What it does do is offer you a chance to invest in businesses you believe in, support values you want to promote or choose to lend locally within your own community.

In all honesty you shouldn’t use peer to peer lending to invest money you can’t afford to lose but, that said, all of our borrowers have to supply all sorts of financial information and are put through external credit checks in addition to our own in-house analysis.  The FK management teams are investing in all early loans themselves so they have an added incentive to get things right.

KK: Ok, fabulous, I can see how crowdlending makes much more sense to me as someone who tries to live ethically, pursues an active interest in their community and local businesses. It ticks many boxes that you wouldn’t find elsewhere, especially not at a run of the mill high street bank. It seems to me that there is a whole world of opportunity out there that I am beginning to learn about. Stay posted.

Peer to peer lending: Why Borrow from FundingKnight?

As a small business owner it makes sense for me to ask why would I approach FundingKnight rather than a bank to borrow some funds? I struggle to borrow books from the library so a business loan from anywhere seems like a crazy notion to me but many, many people and companies do it all the time so maybe it’s about time I learnt a little bit more about it.

I asked FundingKnight to explain a bit more about the whys, hows and advantages of going down the crowdlending path.

FK: Here’s a simple answer: a lot of banks say no – they have been advised by the government to build up their capital bases (keep more cash in reserve) and that doesn’t fit very well with lending more money out!

KK: What about the process of approaching FundingKnight compared to a bank?

FK: Lots of businesses don’t like the red tape and bureaucracy of banks – we try to treat people likes names not numbers

KK: Are there other advantages that businesses can benefit from?

FK: Flexibility is a big advantage with borrowing from us. Often business loans let you choose build your own loan.

KK: Like a lovely financial menu?

FK: Exactly. You can borrow for any number of months between 6 and 36 (3 years) rather than choosing between 1 or 3 year products, typically on offer. This could save you a lot of money if you have a decent sized loan that you only need for a few months to cover stock purchase.

Even when loan providers don’t charge early repayment penalties, interest is usually charged for the full period of the loan so it always makes sense to borrow for as short a time as possible.

KK: What about if I need to take a break from paying the loan back?

FK: If you want you can take upfront payment holidays, i.e. you don’t start to repay the loan until after the first three months.

KK: That’s fabulous, and great if I needed an initial investment in my top secret manufacturing venture I am currently thinking about. This would be a perfect solution to any cash flow issues that are bound to happen.

FK: Well, perhaps not.  We only lend to Limited Companies who are registered with Companies House and have been trading in the UK for at least 2 years.  We also take quite a close interest in cash flow projections, but good luck anyway!

So my journey into the rather marvelous world of crowdlending continues. There’s still more to learn but the pieces are beginning to come together nicely.

Why should I invest in FundingKnight?

So while I’m gradually beginning to get my head around exactly what FundingKnight do, I realised, attempting to write this post, that there’s still loads I JUST. DON’T. GET…. So, I thought, why not quiz some of the big financial brains currently residing at FundingKnight to help get to the bottom of all this crowdlending jazz?

Now first things first..what to ask?! I guess rather selfishly, what’s in it for me and how much will it cost me as either a borrower and what are the rates of interest?

FK: When it comes to crowdlending (or peer to peer lending as it’s also known) the lenders – or investors – choose the rate that they are prepared to lend out their money at so, if you like, you set your own interest rates.  That said, there’s obviously only so many loans to go round so as more and more lenders get involved, they’ll start outbidding each other and rates will get more competitive for borrowers.  Right now, we would expect rates to be somewhere in the region of 7% to 12% to begin with.

Right. So rates are competitive, flexible and fluid and the more people get involved the more people benefit. Sounds fantastic and something people can really believe in and get behind. How about as a lender – would I expect to pay any fees investing my hard earned cash into FundingKnight?

FK: No. There are no lenders’ fees, it is entirely free to invest.

So that’s the costs sorted out in my head. There will be more questions. So many more I wonder sometimes how I get by in life but at the beginning of my journey it is all starting to make more sense.

Next up – financial security and timescales. Are there any questions anyone out there would like to quiz FK on? Please get in touch, I look forward to hearing from you.

What does crowdlending actually mean?

making a home movie

So my journey continues and I am just beginning to get under the skin of exactly what crowdlending means…

First of all, let me digress on a tangent to crowdfunding, which may be a buzzword that some people are already familiar with. As someone with an arts background I have certainly heard about similar things in the creative industries.

Fantastic ventures in any sector occur as a result of this type of funding where likeminded groups of people, unknown to each other but united through an interest, website or locality, could club together to invest in something that they believe in or would perhaps like to see happen in the future.

For example, making an independent film would have been in the past almost impossible without some hefty and risky investment or perhaps a film council grant. Nowadays, thanks to a slow economy and arts cutbacks the process is a-changing. Filmmakers could potentially post an idea on Kickstarter (other crowdfunding sites are available) and seek nominal amounts of cash from prospective funders, interested parties or fellow film enthusiasts (with some you can get involved from as little as $10 upwards).

With multiple parties making the same financial promise, the amounts soon add up and a group could make the impossible, possible. In return for your investment you may get your name on the credits, get a film t-shirt or something like a tour of the film set.

What a brilliant and empowering notion, not only for the individuals to be able to help create things that they believe in but also for the receivers to be able to produce their marvelous vision in a way that benefits more than themselves.

So, what about crowdlending.  Well, apparently it’s exactly the same except for the – admitedly quite important – fact that whereas with crowdfunding you take a share in the company, with crowdlending, we’re just talking loans.  For the borrower, that makes quite a difference.  Instead of hundreds of shareholders complicating proceedings, they can hang on to all their equity but still get the finance they need in the form of a straightforward business loan.  Yes – that loan is then made up of lots and lots of little loans from indvidual people you you and me – but none of that complexity gets transferred to the business.

Peer-to-peer (or, strictly speaking, peer to business) lending by FundingKnight allows investors to choose what companies or projects they believe in and lend money accordingly. FundingKnight will still run all sorts of credit checks on the business because of course you want your money to be secure, but why wouldn’t you want to lend your money to your local farm shop, co-operative or business enterprise? You can receive solid financial returns from something that makes not only makes your life better but also makes your community a better place to live.

In my mind, choosing where and how your money gets spent is a fantastic and unique concept that more people will turn to in the future as we gradually become more locally focused in our endeavours.

I am beginning to enjoy this learning curve. It’s positively infectious. Here’s to finding out more and inspiring each other.