Peer to peer loans trading – How our loan exchange can help investors

loans sign

Recently, our guest blogger, Katie, published her step by step guide to the FundingKnight loan exchange.

She was keen to point out that the loan exchange can be a great way to begin your FundingKnight journey.  After all, buying part of an existing loan (rather than bidding to get involved in a current auction) has several advantages:

You can start earning interest immediately

Since these loans are already live, your money starts working as soon as you “buy it now”.  No need to wait for an auction to end, no need to worry about getting out-bid and not having the chance to re-submit your offer.

It makes spreading your investment easier… and quicker

Most people agree that spreading out your cash (diversifying your portfolio) is a good idea.  It helps minimize risk because you reduce your exposure to any one loan failing.

But waiting for new loans to come on stream can be time consuming, particularly if you’re using a new platform with less loan traffic.

The loan exchange can help.

Instead of bidding on new loans, you can instantly buy parts of existing ones.  That gives you instant access to all the loans that were listed before you started investing and provides the perfect way to quickly spread your investment out thinly.

You can choose shorter investment periods

Existing loans have obviously been running for some time before you buy into them, in fact, some will only have months left to run – meaning that you enter loans knowing exactly what interest rate you’ll earn (assuming no defaults) and exactly when your investment will be repaid.

And of course, if you need to access your cash earlier than planned… you simply head back to the loan exchange.

Selling part of a loan is easy, too…

When it comes to selling part of your investment – perhaps because you want to switch to another loan or simply because you need to access your cash – we’ve tried to make things as simple as possible.

Rather than having to sell your whole loan in an “all or nothing” way, you can choose exactly how much of any investment you want to sell and whether you want to apply a discount or premium to the original price.

This flexibility can be useful if you want to invest a large sum into a loan but know that you’ll soon want to sell part of your investment and buy into newer loans to speed up diversification.

It’s a feature that Steve Lee – who featured in this  investor Q&A about peer to peer lending – singled out for particular praise.

We asked Steve, “are there any FundingKnight features you particularly like?” and this was his reply:

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 that 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.

 

To visit the loan exchange, log on to www.fundingknight.com, choose Find a Loan from the menu on the left hand side and scroll down to see the loan exchange.  If you’ve not already signed up, register for free via the FundingKnight website and enjoy fee free crowdlending for investors.

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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.

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.

We like…Muddy Carrot

What would the world be like if we invested 50% of our assets within 50 miles of where we live?

It’s an interesting thought brought to our attention by Slow Money, a US based movement acting on and exploring a vision that, to quote, is;

“bringing people together around a new conversation about money that is too fast, about finance that is disconnected from people and place, about how we can begin fixing our economy from the ground up… starting with food.”

The ideals, vision and ethics Slow Money are creating and living by can only bring positive and empowering results to the communities involved. It’s exciting stuff and has been inspiring us at Funding Knight to look for similar UK models and likeminded businesses as we continue our series of profiling ethical company models we admire.

Which brings us to Muddy Carrot, an online farmers market. It is a fabulous and relatively new enterprise. The company, based in Dorset, sells everything you might find at your local farmers market, but through a one-stop shop website where you can pick up your purchases from individual sellers or get them delivered directly to your door. Customers are able to buy countless different locally produced products varying from crafty kits to local preserves, meats, cheeses, toiletries and even, yep that’s right, livestock.

Muddy Carrot’s creators say;

“Having spent many years attending markets, both local and national, we were aware of the rich range of beautiful, carefully handmade things that were hidden away down country lanes only to appear at occasional events.

We realised there was a need to bring all these hidden gems together in one up-to-the-minute and convenient marketplace showcasing businesses that have a genuine ethical heart.   Everything beautifully produced, either from their local soil or upcycled.  A combination of a farmers’ market and village fair full of gorgeous things you couldn’t find anywhere else.”

It’s a fantastic concept echoing the Slow Money vision.  We at Funding Knight like their style for the following reasons: 1) They represent a whole community of local makers, growers and farmers in one central, globally accessible location 2) It aids the growth of local businesses 3) It provides customers with high quality, locally sourced products 4) And last but not least, its principles are ethically sound and sustainable.

Now just when you think it couldn’t get any better, this is where Muddy Carrot stands out from the crowd. The site not only provides a platform for products created by their local community, it wants to grow its local community, too by providing up to date listings and information on local events, groups and holiday opportunities.

A local map on the Muddy Carrot site allows purchasers to see exactly where their food and products have come from, helping customers to keep it local, make a positive change and, ideally, plough assets back into our local community.

So, why not check out their website.  You can support your town and best of all, shout about it to other likeminded people?

We like… West Country Radio

One of the reasons we set up our crowdlending business was to provide a way for people to invest in the things that are important to them. You see a business model you like, an ethical standpoint you admire or simply a gap in the market and then invest into a company that fits with your beliefs. You have the power to make good things happen.

As we build up our business we hope to make that dream a reality but in the meantime, we’re keen to help local causes in whatever way we can.

Over the next few weeks, we’ll be looking at business models we admire, want to be involved in or just think are worth sharing. We’ll also follow progress as these companies grow, taking our readers, lenders and investors on a virtual journey.

First out the bag is West Country Radio. Just launched on 13 August 2012, their business is a not-for-profit radio station aimed at promoting the south-west, increasing tourism and promoting businesses, resorts and events. It is a local business aimed at improving the lives of local people.

Its uniqueness comes in the form of how the radio station is broadcast. All presenters broadcast from home studios, transmitting their shows live and pre-recorded. This of course reduces costs enormously and allows money acquired by the station to be used on other things such as marketing and promotion.

What’s more, the station is completely run and produced by volunteers, minimising costs and providing fantastic volunteer opportunities, internships and training for people keen to get involved and learn about how a radio station works.

Opportunities like these are incredibly valuable for a local community and are applicable to all ages, from young people looking to gain experience for the future through to retired volunteers looking to give something back in their spare time.

Whilst relying on volunteers and therefore reducing overheads considerably, West Country Radio are also looking for funders, advertisers and sponsors to aid and increase capacity and grow the station’s listenership. The hyper-local nature of the station means that local businesses and events would benefit enormously from getting involved in the station whilst also helping out in the early stages of growth and helping to benefit the local area.

Local ventures such as West Country Radio are exactly what Funding Knight want to promote. Sometimes, we’ll help by providing business finance via our crowdlending model, and when that’s not viable we’ll help spread the word about local people committed to helping local people. We believe life is about more than just business, it’s about getting back to the roots of community and the warm fuzzy glow you can get as a result.

Peer to business lending with FundingKnight… more than just a romantic notion

red love heart

My last post broached the subject of small business loans and the role that credit checks and scoring systems play when it comes to loans for business.  It was great to receive some comments in reply and one of them – pasted below – really got me thinking…

“Peer to business lending is based on everyday savers lending to everyday businesses” – This is a romantic notion. The reality is that a) Saver/Lenders do it to get a better rate of return and b) Getting a P2P loan requires that you pass some of the most stringent credit check criteria out there. Credit scores are there for a reason and while the system may not be perfect and could benefit from refinement, implementing something with even a small element of subjectivity or human interaction would be logistically very difficult and make it impossible to be consistent I imagine. I’m afraid I think what we have may be as good as it gets for now.

Sean O’Farrell

So – peer to business lending – Is it part of a wave of new finance that’s genuinely trying to shake up business funding in the UK… or is it really nothing more than a romantic notion?

It’s a valid question to ask.

After all, it’s easy for new entrants to criticise the status quo.  It’s tempting to get carried away in the quest to be different…

But actually, when it comes to the crunch, I really do think that peer to business lending is about more than financial performance, more than simple greed.

Of course, the figures have to stack up for both sides.  Savers do – quite rightly – want a better return on their hard earned cash and borrowers – understandably – want to get the business funding they need on the best terms possible.

But beyond that, all of us want to feel like we’re doing the right thing.

When faced with the choice of investing in unknown stocks and shares in unknown locations vs. the opportunity to lend to hand-picked British businesses, many people would opt for the latter.

There is a huge movement to support local communities, there’s a huge movement to invest in local trade.  That’s not romantic, that’s a reality.

If the global financial crisis has taught us anything, it’s that we need greater visibility about what our money is funding and how that investment is performing.  There is a growing band of people who want to invest in tangible businesses they can touch and feel… and through peer to business lending we hope to be able to help them invest locally.

History shows that greed is rarely the path to happiness.  Neither is a willingness to accept that what we have now is as “good as it gets”.

People want to protect their savings and feel like they are doing the right thing.  People want to help the British economy recover.  People want to be able to be an equal partner in setting the terms on which they borrow and people want to control their finances.

Those notions aren’t romantic and they aren’t unrealistic.  They’re evidenced by campaigns such as Move Your Money, they’re demonstrated by the willingness of customers to support their local high street or pay more for locally sourced, organic produce and they will become the reality with the growth of peer to business lending.

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Peer to peer lending: Evolution and devolution

campaign banner with slogan 'of the people, by the people, for the people'

It’s tempting to think about Peer to Peer Lending (P2P Lending) purely in terms of progress, as an evolution towards a new way of lending and borrowing money; but, whilst there are plenty of reasons to think of P2P Lending as the future of savings and investments, it’s not all about looking forward…  Sometimes, it’s just as important to learn from the past.

Banking grew out of personal relationships.  Even relatively recently you could walk into a high street branch of your bank and talk to a bank manager who knew you and your situation… and who had the power to make a decision, there and then.

Yes, there were national and multi-national banking chains but despite their size, a personal connection remained between a bank manager and their clients.

Roll forward a few years and the internet has come along and changed everything.

Why the internet?

Well, because it was the web that ushered in a new era of competition in banking.  Overseas banks – like ING, Icesave or ICICIC – plus everyone from supermarkets to department stores rushed to woo customers with great online deals.

Savings rates rocketed, whilst mortgage rates fell and the introductory rates were good for everyone… until they weren’t.

Having decided to compete for rate grabbing online customers, the banks were under pressure to cut costs to avoid hurting their profits.

Again, the web stepped in to help.  Faced with the huge infrastructure of branch networks and an urgent need to save money, banks saw the internet as a way to scale back customer service and introduce customers to lower cost, remote ways of doing business.

That, too, worked really well.  Until it didn’t.

Suddenly, customers weren’t so much connected to a brand as making temporary use of a headline grabbing interest rate and instead of using the web to get closer to customers, banks had used it to create a gulf.  The clients, whose relationships they valued no longer had a way to chat or engage with them, even picking up the phone often meant speaking to an offshore call centre.

Peer to peer lending is online too – but instead of a service that’s remote and aloof, we want to use the social web to create a community of lenders and borrowers.  We love the efficient, 24/7 feel of doing business online but we know we need to listen to and engage with our community, too.

We think P2P Lending can help rewind the clock to a time when local communities helped themselves.  P2P Lending can be large scale if you want to invest nationally, or it can become hyper-local for lenders who want to invest in businesses within their own communities.

As the concept spreads, the amount of loan opportunities will grow and there will be more and more choice about where – and who – to invest in.

That power to control your investment is our way of giving power back to customers.  Whilst P2P Lending offers a great return on your money in comparison to high street deposit accounts, we are being careful to create long-term, sustainable lending communities that create deals that offer better value for everyone.  We’ve used to the web upfront to save on infrastructure costs so our great rates really are great, and they don’t force us to compromise on service as a result.

As a FundingKnight Lender you benefit from making your money work harder and get more say in the business investments that are right for you.  Meanhile, borrowers are assessed as real people, rather than treated as data to be plug into a computerised scorecard.  We like to think it’s combining the best of both worlds – the efficiency of the social web with traditional relationships banking.

So, yes, P2P Lending is progress, but it’s about devolving power back to you, the customer, as well.

We’ll use the web to get closer to our customers and we’ll use social networking to listen to what you want.  It’s early days here at FundingKnight but we hope you’ll head over to our website and sign up to stay in touch and please do let us know what you think; we’d love to hear what you’ve got to say.

Or, if you are a well established British business looking for a fast, flexible and competitive loan, apply for business funding today, we’ve got funds ready to lend.

Photo used under Creative Commons License

Loans for business

scrabble tiles spelling 'loan'We know we’re not the only ones trying to boost business funding through P2P Lending.  After all, only this week, the government has announced that it, too, is getting in on the act by making a £100m fund available for alternative lending platforms like FundingKnight.

It’s always good, however, to read genuinely insightful posts about just why P2P Lending could be such a neat form of business investment.

In his e-cademy blog, David Pitcher provides just such a post asking,

screenshot of blog post on ecademy aout P2PLending

David is kind enough to mention FundingKnight and point small businesse in need of online business loans towards the business funding page of our website, however, even without the plug, he’s written a strong analysis of our current cash flow crisis and we’d strongly recommend you pop over to his blog to read the full article Business: Is this the end of banking finance?

One comment from David, however, that I simply can’t resist sharing right now is the following one:

“History reveals that seriously challenging circumstances can also spawn creativity and the invention of new – even better – ways to succeed.”

That’s exactly what FundingKnight is about.  Finding a new way to give both P2P lenders and business borrowers a better deal.

So, head over and see what David has to say and stick around to answer some of the questions he poses.  He’s already collecting a stream of responses from people who do – or don’t – like the idea of peer to peer finance, why not add yours?

For a great analysis of the government fund for alternative lending platforms, try www.thisismoney.co.uk

Photo used under creative commons license

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