Time for the annual report on the performance of my peer-to-peer lending investment. Funding Circle is doing very well: they have doubled the total amount loaned out; opened a US website; and, now can be included as part of a tax-free ISA in the UK. Some of that extra money loaned is mine. After last year’s good returns (much better than other UK investments), I decided to add some extra money to my account. So in retrospect, was that the right decision? Have the investors done as well as the company?
Here are the returns for the last UK tax year:
After Fees: 8.8%
After Bad Debt & Recoveries: 10.4%
Wow, my best year, and by a long way. 10.4% is an extremely respectable return, especially in a year where the FTSE-100 share indexed has declined. According to Funding Circle my lifetime (5 years) return is currently 6.4%, also very good.
Gross returns have risen around 2%, with fees roughly matching the rise. However, the biggest gain has been net bad debt/recoveries. In the last year I have only had a single loan go bad – much better than previous years. Recoveries have been huge! Larger than the loss and even larger than the fees paid this year. Thus a total return higher than the gross return! Kudos to Funding Circle team as they have now recovered about half the bad debt from previous years.
So with that kind of return I should be adding more money to the account, right? Unfortunately not. I manually choose all the loan offers joined, as opposed to using the autobid tool. As my criteria has tightened (small, guaranteed, short term loans to profitable, tax paying companies with good credit rating and acceptable working capital), my bad debt rate has dropped below the site average, despite making over a hundred loans per year.
Since a rule change in the way Funding Circle works at the end of last year (fixed returns rather than an auction), it has become increasingly difficult to find loans to fund. This is not due to a lack of loans available, or even a decrease in their quality. Instead it is because the loans are filled in a matter of hours rather than days. Now most of the best loans are already filled and closed before I even get a chance to see them. Most frustrating.
As a result I have built up a surplus of non-invested money on Funding Circle. Money that is not earning any interest (for me anyway). Enough to fund several weeks worth of loans under the old system, but currently, and for several months, there have not been enough opportunities. My options are to relax my lending criteria, or start using their autobid tool (effectively lowering my standards anyway). Alternatively, I can accept my time on the site is over and start to slowly empty my account (it will take a long time to close out some of the loans, even with their secondary market). I have yet to decide what to do.
Tune in next year to see what happens!