Leading small business lender Funding Circle announces changes to gross interest rates.
Funding Circle, the world’s largest marketplace lender for SMEs, has adjusted the rates it charges to small business borrowers on the platform. Gross interest rates have fallen in the platform’s A+, A and B risk bands, while rising in its C, D and E bands.
Taking an average across all terms for each risk band (which may not give an entirely accurate portrayal of the changes, in that it fails to account for volume weighting by term), the shifts in gross interest rates are as follows:
Despite the changes, Funding Circle still expects to deliver a net return of 7.0 per cent to diversified investors, which is more or less consistent with its target net return at present. The adjustments will be implemented 7 November.
Commenting on the changes, a Funding Circle representative said that they were “not related to Brexit”. She said that the adjustments are instead an attempt by the platform to provide a better quality of customer service to both sides of the marketplace by leveraging the large amount of data that has been compiled by the platform over the past five or six years of lending. This weight of data means “better pricing” for Funding Circle’s safest borrowers, while the platform increases its loss coverage ratios for riskier loan groups.
Jack Pritchett, customer communications manger at Funding Circle, wrote the following in a statement about the changes: “Over the last six years you have helped over 17,000 small businesses access finance. This has provided us with more credit performance data, allowing us to make even more accurate pricing decisions.”
Fellow peer-to-peer lending giant Zopa announced changes to its rates last week, lowering its targeted investor returns by 0.2 per cent across all lender portfolios. It was the second time in as many months that Zopa has had to cut rates, each time citing increasing competition within the consumer credit market as the cause. But Funding Circle is keen to stress that its own adjustments have absolutely not been made in response to Brexit – or subsequent cuts to the base rate.
Funding Circle switched to a fixed interest rate model in September of last year. Since then the platform has charged borrowers fixed rates, which are determined by two key factors: which risk band the business falls into, and the term of the loan.
The new gross interest rates can be seen below.