Another year, another annual report on my Funding Circle investments. Events since last time have greatly changed the UK small business environment (see Brexit) and Funding Circle have also modified their rules. As a result, it is likely this will be my last report. Before explaining why, let’s see how the investments performed.
Here are the returns for the last UK tax year:
After Fees: 7.3%
After Bad Debt & Recoveries: 7.0%
Pretty good again - 7% much better than a bank, and about half the 2016 return on the UK stockmarket. Apart from a problem one year with bad debt, the returns have been consistently decent and worthwhile.
So why could this be the end? It is becoming increasing hard to find suitable loans. This started with the issues raised in the last report, when the site removed the loan auction system and replaced it with a fixed return system. This means that loans fill up much faster - especially the less risky or smaller ones. Thus when I check the site there are substantially less loans available. For a while this was balanced by large real estate loans that tended to take a few days to fill, but now Funding Circle has decided to reduce their number as well. Perhaps this change is due to Brexit risks? I’m not sure, but it would certainly make sense to me. The risks of lending to UK business have certainly increased in the sense the future is more uncertain. Do I really want to lend to that small manufacturer for 60 months? I have found myself more hesitant to lend - my required standards have increased.
Over the last year the money left unlent in my Funding Circle account has steadily increased. Since such funds accrue no interest, as soon as they reach a significant level, they are moved out to my bank account. Then it starts to build up again. I just can not find enough loans to join. By the end of the tax year the account was a third lower than at the beginning. Again, it is already starting to rise after just a week and there is a very good chance I will have a negligible amount left in Funding Circle in another 12 months.