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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Straight from an investor’s mouth… the crowdlending experiences of one FundingKnight lender

customer satisfaction

Steve Lee is the MD of Jumbocruiser Ltd., the largest British owned luxury sleeper coach operator in Europe.  As he gets closer to retirement, he’s looking for ways to invest his spare cash effectively.

Since summer 2012, Steve has been actively participating in peer to peer lending using a variety of P2P / P2B platforms to invest funds on behalf of himself, his company Jumbocruiser Ltd., the Jumbocruiser Retirement Benefits Scheme (where allowed) and Spenion Unlimited.

Steve has recently become an active FundingKnight lender and has kindly agreed to share, in his own words, some of his thoughts about crowdlending:

FK:  When did you first start experimenting with peer to peer finance?

Steve:  Summer 2012

FK:  Other than FundingKnight, which websites do you use regularly?

Steve:  Funding Circle, Marketinvoice, Thincats.  I also have interests in Zopa and Ratesetter that I am running down.

FK:  You’ve recently started lending through FundingKnight, a relative newcomer in the P2P space.  What do you need to see from a new entrant before you are willing to invest?

Steve:  I always look up the company history and look at the track record of the people behind the company and do a bit of research in the same way I might if investing in shares or loans on other platforms.  When it comes to loans on the platforms, I am slowly learning to use common sense as well.  On one platform I bid £5,000 on a company that was set up just to do a major conference with global speakers (i.e. Bill Clinton) designed for budding entrepreneurs.  This was before I looked at the project carefully.  On reflection I realised I should never have placed the bid as the opportunity was fraught with danger – who was going to cough up £250 to hear people with no entrepreneurial skills like Bill Clinton speak?  I am more careful now and as a minimum I get a credit rating and require a track record of the people involved and even then spread myself out thinner initially.

FK:  Why does P2P finance appeal to you?  Is it solely about the return on investment or does helping small businesses / getting more involved in actively managing your money matter too?

Steve:  I have to apologise but despite being a former hippy activist, I do not do it for the kharma but merely due to the fact that I need to invest my spare cash effectively before I retire.  I believe there is a short term window of opportunity until the government and banks get their acts together where I can overall hit around the 10% return mark before tax and I am taking advantage of it.

FK:  Are there benefits to be had from dealing with smaller companies like P2P lenders rather than big, mainstream banks?

Steve:  It depends on (a) rates and (b) security required when lending to profitable businesses.  For new businesses P2P will probably remain the ONLY way to get capital invested.  There are many lenders out there who will do auto-lending, so those loans will be covered once they get past the platform’s own initial evaluation for loan acceptance. Nearly all my failed loans (on other platforms) were auto-lent so I no longer do that but some people just do not have the time to mess around so I still see a value in auto-bidding for the lenders and the platforms and the borrowers.

FK:  Are there any FundingKnight features you particularly like?

Steve:  I’m impressed with the way that the loan exchange works, letting you buy and sell loan parts.  Say I have £500 to bid, I often want to do 5 x £100 bids at the same interest rate.  On most sites I have to do it manually five times and keep scrolling to the bid rate which on a tablet or phone is not easy.

FundingKnight allows you to split up an investment and only sell part of it on the loan exchange, giving you the option to state exactly how much you want to sell at any one time.  In my opinion that makes it a superb solution, the best one available on any of the platforms I’ve used.

FK:  What would you say to potential investors wondering whether to try P2P Finance?

Steve:  Spread your loans thinly.  Look at who you are lending to.  Feel comfortable about the lending platform that you will initially be sending your money to.  Do not be greedy and bid a lot on loans which have high interest rates but carry a bigger risk.  Subscribe to a database like Company Check and if things look to be going downhill, do not delay selling on a secondary market (loan exchange) even if you are getting a high rate of return.

It is quite difficult to lend out a lot of money quickly so use a site with a secondary market (loan exchange) and accept lower rates for now so you all get all your money lent out and then slowly sell the loan parts when rates are higher elsewhere.  It is a juggling act but it can be done.

FK:  Thank you Steve, we really appreciate you taking the time to share your thoughts with the FundingKnight blog.  Good luck with your crowdlending investments in the future.

Note: The answers above represent Steve’s own personal views and opinion and in no way constitute advice.

More about Steve:

Steve Lee is MD of Jumbocruiser Ltd, one of Europe’s leading sleeper coach companies with coaches from 8 to 16 passengers.  If you are interested in finding out more, please use the online quote form to get in touch.

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.

The future of savings and investments

scientists and test tubes

We’d all love to have a crystal ball; Be able to gaze into the future and see clearly what lies ahead.

Increasingly, though, it’s hard enough to keep up with the pace of change, let alone predict the future.

In his new book, How to Thrive in the Digital Age, Tom Chatfield suggests that:

“The impossible facts of our age are only just beginning….  The pace of these changes is another unprecedented thing.  Television and radio have been with us for over a century; print for more than 500 years.  Yet in just two decades, we have moved from the public opening-up of the internet to its connection to more than two billion people; and it has been just three decades between the launch of the first commercial cellular-phone system and the connection of more than five billion active accounts.”

This radical change in the way we live has caused massive upheaval.  The record industry has found itself competing with instantly downloadable tracks that have made the CD single virtually obsolete.  Books are quickly morphing into ‘virtual’ e-books whilst amazon dominates the sector and everything from groceries to cars can be ordered online and delivered at the touch of a button.

In short, the way we use technology has changed not only the products we use, it’s changed us as well.

Some call it being ‘wired for distraction’; others point to the ‘always connected’ society and worry about the impact on attention spans and personal relationships.  Whatever your view, it’s clear that we’ve become more short-termist in our thinking and more demanding when it comes to products and the choices we’ve made.

So, really it’s no surprise that they way products are designed and sold has changed too, is it?

Or has it?  What’s really surprising is that when it comes to the financial sector not that much has actually changed at all.  Yes, you can now get your bank balance via text or use the internet to check interest rates but those changes are just channels, different ways of finding out the same answer – which is that financial products are no longer meeting the needs of real people.

In a recent study by Weber Shandwick, 50% of respondents agreed with the statement that “many financial products currently available don’t fit their lifestyle or their individual need.”  Nearly four in five agreed that low interest rates make savings accounts a poor investment.

So, what needs to change?

Well, Weber Shandwick suggests the industry must “start from scratch with a completely new suite of products that will meet the needs of the short-termists.”

In fact, it’s not that easy.  Meeting the needs of today’s consumers means offering fast, flexible and transparent business loans that will help the economy grow – yet banks have to focus on rebuilding their capital bases.

Meeting the needs of today’s savers means offering higher returns, yet banks are struggling to return to profitability and money is scarce.

So whilst we do need to take a new look at what is the best investment and start offering savings and investments that yield a decent return rather than typical deposit accounts that pay barely more than inflation, it may not be the banks that are able to do it.

Meeting the needs of today’s society means giving some thought to collaboration; Providing ways for people to help each other out; Finding products that are good for all concerned rather than a winner takes all, zero sum game.

It’s hard to see how banks can deliver this change singlehandedly.  In reality, private sources of business funding, and peer to peer lenders like Funding Knight who can offer both competitive loans for business and higher interest savings accounts must step in to help solve the problem.

At FundingKnight we’re excited because we think it’s not just technology that’s changing, but the whole way we do business.  We think the days of ‘computer says no’ and poor value for money are starting to end, and we’re keen to accelerate the pace of change.

Learn more about how you can pool your funds with others to make your money work harder

Or

Apply for flexible and transparent funding for business

Or simply stay in touch.  We’d love to keep you updated with progress.

Photo used under creative commons license

P2P lending becomes a hot topic for conversation

people joining hands around a lightbulb, representing concept of peer to peer lending

Recently, it seems like peer to peer lending has barely been out of the news.  Newspapers and websites are almost falling over themselves to comment on the growth of alternative finance companies like Zopa, or peer to business lenders like Funding Circle.

Last week, the news gathered pace when John Mack – the former chairman and CEO of Morgan Stanley – joined the board of a large US P2P lender, the Lending Club.

Back here in the UK, the FundingKnight team is pleased that everyone from the Bank of England down to the media seems to recognise the potential of peer to peer lending.

Last month, Andrew Haldane, Executive Director for Financial Stability, put what many were thinking into words, saying:

Small peer-to-peer lenders like Zopa and Funding Circle could in time replace High Street banks.  These firms could be revolutionary.  At present, these companies are tiny.  But so, a decade and a half ago, was Google.  If eBay can solve the lemons problem in the second-hand sales market, it can be done in the market for loans.”

The FT followed up with this Lex article that begun by asking “why not cut the banks out altogether?  They are, after all, too busy deleveraging to want to lend to all but their most creditworthy clients.”

FundingKnight doesn’t think it’s time to cut banks out of the equation, as we’ve said before, we all have a vested interest in a healthy banking system, but we do agree that the high street banks need some help servicing the borrowing needs of healthy British businesses, and we do agree with the final point made by the FT, namely that the:

“Growth in P2P lending is a sign of the way bankers’ relationship with capital providers has been broken.  With few signs that their interests are any more closely aligned post-crisis, it is hardly surprising that investors now seek returns by cutting out the costly middle man.”

Our last post spoke about the challenges facing savers on the hunt for higher interest rates and with both borrowers and lenders searching for a better deal, the reasons why Britain needs peer to peer lending are starting to grow.

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