FundingKnight review: What makes us different for investors

being different

This week, a potential investor was kind enough to email us and ask what makes FundingKnight different?  She is keen to spread her investments over a wide range of products and wanted to know what unique differences set FundingKnight apart from other crowdlenders she uses.

We’ve sent a personal response with some answers but if one potential investor is asking the question, it obviously means that there are more of you out there who would like to know more about exactly what’s different about investing with FundingKnight.

So, here goes, a quick review of FundingKnight for lenders.  Feel free to check out the points below for yourself and gives us your thoughts – our door is always open to customer suggestions, tips and constructive feedback.

We lend to businesses not individuals

We arrange loans for businesses rather than people.

Why does it matter?  Deciding whether to invest in businesses or individuals is obviously a personal choice, but we think that the public information that’s available about businesses – such as accounts, cashflow analysis etc. – coupled with the internal and external credit checks we run, make it easier to assess whether a loan from a business is likely to be repaid successfully.

We offer fee free lending for investors

Investing through FundingKnight is fee free for investors.  There are no annual fees, account fees or hidden charges or costs, although of course, there might be tax to pay on any returns.  Many P2P lenders charge fees to investors..

Why does it matter?  It’s cheaper. Investors through us pay no fees, so the interest rate you bid is the interest rate you receive (pre tax and defaults).

We make it easy to sell part of your investment on our loan exchange

FundingKnight let you choose exactly how much of your portfolio you want to sell on the loan exchange.

For example,

You place a bid in a live auction, bidding to invest £1,000 in Apple Accounting Ltd. at 10% over 3 year loan period.

Your bid is successful, the auction completes and you now hold a £1,000 investment in Apple Accounting.  Each month you’ll receive a payment including capital and interest at 10% (prior to any tax and defaults).

A year later, you need to access some cash to finance some unexpected repairs.

You need £600 but you don’t want to cash in the whole of your investment, as you’d like to continue to receive 10% interest on the remainder.

With FundingKnight, you simply tell the system how much of your investment you want to sell, what price you want to offer it at and submit to put it live on the loan exchange.

One of existing investors, Steve Lee, recently called this feature “a superb solution, the best one available on any of the platforms I’ve used.”

You can invest everything that’s in your account

You don’t have to lend in ‘multiples’ on FundingKnight.  We do have a minimum investment of £25 but after that, you can add on whatever is left in your account to ensure that all of your cash is working as hard as it can for you.

For e.g. if you have £32.50 left in your account, you can invest it all rather than investing £25 and having to add more funds to release the remainder.

Finding borrowers and designing loans

Although we’re focusing on investors today, there are also several unique points about how we look after the businesses that borrow via FundingKnight.

  • We offer the chance to take upfront payment holidays, which can be very useful for businesses that need time for the loan investment to start flowing through into cashflow and profit.
  • We use forward – looking as well as historical information to assess applications and focus on how the loan will be repaid out of cash flow.
  • Investors will have access to a cash flow forecast for each loan, information that many P2P Lenders don’t provide.

Hopefully, that gives you some more detail about why crowdlending with FundingKnight offers a better way to lend money.

Please feel free to leave a comment with further questions or drop us an email at [email protected]

Peer to peer loan descriptions: What’s in a name?

analysis

I’m an avid reader of the Lend Academy blog by Peter Renton, in fact, I recently reviewed his book about Lending Club, The Lending Club Story on the Funding Knight blog.

One of the reasons I love Lend Academy is the amount of information and analysis on offer for P2P enthusiasts.  Yes, it’s focused on the US market but it never fails to get me thinking…

This week, it’s the a guest post called Loan Descriptions – Can They Be Helpful When Choosing Loans? that has caught my eye.  Written by Sam Kramer, a financial sector old-timer and keen P2P investor (You can find him on Twitter @P2P_CT), the post delves into historical data to investigate whether the loan description that introduces a P2P loan is at all predictive of its eventual repayment rate i.e. can you predict which loans will default simply by reading their name?

Well, I won’t let all of the results out of the bag, you should head over to Lend Academy to read the full post for that (and subscribe since this is just the opener in a 2 -part guest slot) but here’s a taster to whet your appetite.

chart tracking default rate by loan description length

Default rate by loan description length

Top level analysis: Very short loan descriptions (between 1 and 10 characters) have a reasonably high default rate.  (Note, interestingly, no-description loans have a lower-than-average default rate, as do short loan descriptions of 11 – 350 characters).

The post goes on to look at the impact of longer descriptions as well as drawing attention the the impact that recency of loans will have – if no-description loans are a relatively new thing, then logic says they’ll have a lower default rate since less of them will have grown to maturity.

This latter point is relevant for virtually every piece of analysis you’ll see about peer to peer lending as the whole industry is so young.  Finding a way to compare default rates of very young ‘unseasoned’ loan books with the much more mature lending portfolios of mainstream banks could throw up some interesting analysis… any volunteers?

P2P to be regulated. Next stop, a change to the regulations on the treatment of peer to peer losses.

letter for MPs

Last week’s news that peer to peer lending is about to be regulated by the FCA was met with pretty unanimous support from the industry, with both borrowers and lenders and the peer to peer lending platform owners themselves all agreeing that regulating peer to business lending is likely to boost rather than stifle peer to peer finance in the UK.

So that’s one battle won – or at least the first round, no doubt there is a whole host of further debate to come regarding exactly what shape the new regulation takes…

In the meantime, however, there’s an existing regulation that peer to peer lenders want changed – and that’s the treatment of losses.

Whereas banks and other financial institutions are able to off-set bad debt against interest earner, peer to peer lenders are not under current HMRC rules.

This is not only unfair but fundamentally compounds the impact of any peer to peer losses.   P2Pmoney.co.uk has helpfully crafted a suggested letter that anyone who agrees that the current state of affairs is wrong can cut and paste and send on to their local MP.

You can find the letter here on the www.p2pmoney.co.uk website.

Rothschild backs peer to peer lending as new meets old

old leaf on new grass

Following Friday’s news that peer to peer lending, including peer to business lending  is set to be regulated by the FCA (the regulator about to replace the FSA), the industry has received a further boost with news that RIT Capital Partners, Lord Rothschild’s London-listed investment trust has invested in Zopa, the UK’s first peer to peer lender who started the alternative finance wheels in motion back in 2005.

It’s a move which will inevitably prompt a whole host of “old meets new” clichés as one of the most famous bastion’s of banking joins forces with a disruptive player on the alternative finance circuit.

Speaking to the Financial Times, Lord Rothschild said,

“We are witnessing the growth of the non-banking lending market.  Following the 2008 crisis many of the banks remain under capitalised.  In these circumstances alternative forms of credit will be developed on a significant scale.  This is happening.”

UK peer to peer lending enthusiasts will no doubt watch to see whether the involvement of such an internationally renowned name does for Zopa what the arrival of John Mack did for Lending Club.

Lending Club have now processed over $1bn of loans in the US and their success has often be credited, in part, to the fact that they managed to engage the support of a recognised industry chief who could bring Lending Club the gravitas it needed to go mainstream.

Although Lord Rothschild left his family bank three decades ago, his name remains synonymous with what was once the globe’s most impressive banking group.  The decision of RIT Capital Partners to invest in Zopa will surely be seen as a rubberstamp for an industry which is rapidly growing from a small stream of niche financing into a genuine alternative to mainstream banking.

Our next online peer to business lending auction: LeisureBench Ltd.

online auction

We are pleased to announce that the next online auction has just gone live on the FundingKnight peer to peer lending website

This time we’re offering our registered lenders the chance to invest in LeisureBench Ltd.  LeisureBench were our first loan customers and have already successfully paid off their first loan.  We are delighted that we can now offer them the benefit of a full live auction process.

You can read more about the investment opportunity below and, if you haven’t already registered as a lender, please do take the time to sign up as a peer to business lender with FundingKnight.  You never know when an opportunity might pop up that’s just too hard to resist…

Business looking for funding: LeisureBench Ltd.

Amount: £50,000

Period: 9 months, with 4 month repayment holiday

Auction duration: 13 days

Reason for loan: Stock purchase – Garden Furniture

Business background:

Established in 2004 as a specialist furniture supplier and garden furniture retailer, LeisureBench has built a niche in importing outdoor furniture and buildings for the commercial sector, particularly the pub and public sectors.

LeisureBench is a fast growing dynamic company able to adapt quickly and efficiently to new trends and markets.  As direct importers with partners in China, Indonesia, Vietnam and Bulgaria, LeisureBench develops its own unique product ranges at very low cost price enabling them to compete at every level.

We lent £110,000 to LeisureBench in January this year, which has been fully repaid. This is the second of three loans we are arranging for LeisureBench to fund stock purchases for the 2013 season.

Add funds to your account:

You will need to allocate the appropriate funds to your account to complete your investment. Log on to FundingKnight and go to Add Funds in your My Money account. Remember you can invest as little as £25.

Bid now

Once funds have been applied to your account (It typically takes 24 hours for the bank to transfer the money) simply go to Find a Loan to find further information on the business and the loan opportunity and to make a bid.


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.

A framework for European Crowdfunding

front page of the Framework for European Crowdfunding report

Despite the fact that peer to business lending and all types of crowdlending / crowdfunding are niche products dwarfed by mainstream banking, last year Europe raised €300 million through various types of crowd funding – which adds up to about a third of the world market.  As at the end of 2011, 200 crowdfunding platforms were open for business throughout Europe and their number is forecast to grow by 50% by the end of 2012.

At least, that’s according to the report, A Framework for European Crowdfunding.

Before we get any further, I should make clear that the report covers the various different types of crowd funding / crowdlending including debt based funding typically associated with peer to business lending – available in the UK via FundingKnight, Funding Circle and Thin Cats.

Infact, the report manages to list 12 different types of crowd funding, which it in turn groups into four basic types:

Donation – A contribution made without tangible reward

Reward – A purchase contract for a product or service

Lending – a credit contract or loan where credit is repaid plus interest and fees

Equity – Shareholding contracts, shares, equity-like instruments or revenue sharing in the project/business, potential up-side at exit

According to Matthias Klaes, professor of commerce at Keele university and the author of the report’s foreword, these vairations on a them are linked by a common thread:

“Crowdfunding may take many forms.  But it is clear from their survey that we are witness to the rise of a new kind of investor, a new kind of entrepreneur, and a new kind of intermediary, who are all coming together in novel ways of channelling funds to innovative projects and SMEs.”

A three pronged plan of attack

venn diagram showing 3 pillars of crowd funding framework

The report calls for a three pronged approach to help oversee the future of crowdfunding in Europe:

First pillar = Regulation

“Crowdfunding intermediaries should establish criteria for all types of consumer protection, including security of information, financial control and transparency and fraud prevention.

Second pillar = Education

“For crowdfunding to flourish, we believe a pan-European educational forum is necessary to educate stakeholders, funders and entrepreneurs on the benefits of the industry and the different business models of crowd funding.”

Third pillar = Research

“The industry should drive academic and third part research…. Crowdfunding operators should should provide data sets to further industry research; the industry needs to find a transparent and open approach.  Public reporting and research will drive competition and innovation within the industry.”

Why get involved in crowdfunding?

It also shares some interesting thoughts on what motivates people to start crowdfunding.  As the digram bellows (reproduced from the report) shows, that motivation differs according to the type of crowdfunding model.

Whilst P2P Lending attracts people motivated by financial return and a more efficient way of lending and borrowing money, other types are more likely to have altruistic appeal.

different motivations behind crowd funding

Broadly, though, motivation (for lenders/investors) can be split into three:

Social return – Funders have an intrinsic motivation to help a particular project succeed.

Material return – Funders receive a product or service in return for their investment but pre-sales crowdfunding means that the investor pays the project in advance to create working capital to actually bring the product to market.

Financial return – A funder invests via a loan or equity based model and collects interest or dividend payments.

Whatever your motivation, the report makes a great introduction to crowdfunding in Europe, covering further categories such as policy discussion, European regulation and legislation and how to implement an operational framework for European crowdfunding.

You can download the full report, A Framework For European Crowdfunding here

An introduction to peer to business lending – part 1

introducing...

FundingKnight is delighted to be spreading the crowdlending message over at Smart Accountancy Systems blog this week.

Peer to business lending (P2B), also known as crowdlending, crowdfunding or peer to peer lending is a relatively new way for businesses to access funding and business loans.

Put simply, a business applies to borrow some money via a P2B website or online marketplace.  Their application is credit checked and analysed and, if successful, offered up to the general public using a P2B Lending platform to share details of the loans on offer.

Everyday savers and investors bid to participate in loans, each contributing as much or as little as they choose, so that one business loan is made up of lots and lots of little loans from individual savers.

Businesses benefit from a new source of business finance and savers get a chance to make their money work harder.

So how exactly does peer to business lending work?  Where did it start and what are the key things to be aware of?

Continue reading the full post at Smart Accountancy Systems.

Peer to peer finance: the book.

book cover for The Lending Club Story

Peter Renton releases The Lending Club Story.

Over the weekend, I sat down with a good book… about peer to peer lending.

The Lending Club Story was penned by Peter Renton, founder of Lendacademy.com , and is one of the first books about crowdlending to hit the shelves and – to the best of my knowledge – the first and only one focusing on the Lending Club story.

Lending Club, as one of the big US P2P Lenders, is a slightly different kettle of fish to FundingKnight or other P2P or P2B Lenders here in the UK (for starters P2P is already regulated in the US…) but despite the differences, it’s an interesting read for UK P2P enthusiasts.

You can Click here to read Peter Renton’s own introduction to his book on www.lendacademy.com including an introductory offer for those exceptionally quick off the mark.

There is a huge amount of detail on lending and borrowing via Lending Club which would be highly useful for US based readers but, for me, the best bit was the description of Lending Club’s journey from tiny start-up to an almost profitable business showing phenomenal growth and jointly leading the US into P2P Finance.

There’s also an interesting foreword from Renaud Laplanche, CEO and founder of Lending Club, in which he shares his motivation for setting up the business:

“I realized how the financial system had become focused on itself rather than its customers, and how consumer lending could be made so much more efficient and deliver so much more value.”

That’s a rallying call if ever I heard one, and one that seems to have motivated Laplanche effectively thus far; “In the 12 months ending September 30, 2012, the total amount of loans issued by Lending Club was over $540 million.  That is more than 150% growth over the preceding 12 months.”

After a slow start and an interruption to let regulation have its say, Lending Club has gone from strength to strength.

What’s interesting for me, as someone watching the development of P2P lending in the UK, is the industry that has built up around the platform.  There are a whole wealth of websites devoted to data mining or evaluating loan notes, which is no surprise given some of the case studies that Renton includes to paint portraits of some of Lending Club’s investors:

“Phillip is a very active Lending Club investor.  He logs on every day to look at new loans that meet his criteria.  He will always sort the available loans by time remaining so he only looks at the new loans that have just been added.  He will spend 30 – 60 minutes every day on Lending Club.

He has a portfolio of around $25,000 invested… and he typically invest $25 or $50 per loan.

Phillip has a second account that he uses mainly for investing on the trading platform*.  He has an interesting strategy here.  He will look for late loans that are for sale on Foliofn that have a deep discount of 90% or more.  He will invest in many of these loans with the hope that some of them will come back to current.  He has only been doing this for a few months and he realizes this is a gamble so he only has a small amount of money in this account.

Like many investors he has most of his liquid investments in the stock market, some in savings accounts and he even put some money into U-Haul Investors Club.  But his Lending Club investment is the one that gets most of his attention and the investment that he enjoys the most.

His goal with his Lending Club account is to keep growing it to where he can make $2,000 a month in interest.”

It’s investors like Phillip which hold the future of P2P finance.  It is there involvement and evangelism that will continue to shift funds away from mainstream banking and into alternative finance.  According to Laplanche, that’s what will help capital flow more efficiently.  Let’s hope he’s right.

*Lending Club’s secondary market