Funding secure (FS) was founded in 2012. It started as a pawn broking peer to peer lending service, since then the peer to peer platform has expanded rapidly and firmly into the p2p property lending market. Their core investment offering is focused on property loans with an ROI ranging from 9% to 13%.
Strengths of Funding Secure peer to peer loans
- FS offers some of the best interest rates in the market. Bonus interest rates are applied for investments of 10k or more in increments.
- FS provides an alternative avenue for credit to borrowers who cannot get it at traditional banks.
- Opens the p2p asset class to retail investors.
- Good and efficient customer service.
- Deposits are processed very efficiently. Investors can also inform FS of their deposit via the chat window on the website, for even faster processing.
- Regulated by the FCA (Financial Conduct Authority) under interim permission.
- In case FS defaults the lenders are protected because, first, lending is direct to borrowers not FundingSecure, and secondly, investor funds are ring fenced.
- There are no fees for lenders.
Weaknesses of Funding Secure peer to peer loans
- Loans issued at 9% or more are an indication that the capital invested is at risk. A rough rule of thumb is to compare the interest rate on a peer to peer loan to that of bank account interest rates. Today (24/03/2017) bank accounts are near zero interest rate, p2p loans are 9% or above: the difference between the two is a measure of the amount of risk the investor’s capital is being exposed to.
- Small pawnbroking loans are taken up quickly by investors and have become less frequent.
- Bonuses earned for investments above 10k are lost if such loans are sold on the secondary market.
- No provision fund exists, but to date (March 2017), all loans listed are backed by assets. In case of default, these assets will be sold to replace the capital lost if the borrower defaults.
- Some loans have defaulted, sale of the assets is ongoing but not yet finalised.
- There are seasoned investors on FS who sell loans close to their maturity date on the secondary market; they do this to reduce their exposure to default as the interest is paid at the end of the loan maturity. The borrower’s ability to pay is only known for sure at the late stages of loan maturity. New investors to the platform could buy such loans without understanding this risk in full.
- Loan terms are between six months and one year, the interest is paid at the end of the loan term. This increases risk, as a full default would put in danger both the capital and the interest.
In depth tutorial: How to choose a peer to peer investing platform?
Opportunities of Funding Secure peer to peer loans
- Open to international investors, including those from the U.S.A
- Investing in loans backed by assets is more secure than investing in loans without. There is a ready market ready to buy the assets backing the loans (for the right price). Theoretically, this reduces the risk of long drawn default procedures and investors could have their capital back faster, reducing opportunity cost.
- Property Loans which are filled quickly are an indication that the crowd thinks that a loan has a lower chance of default than others.
- Excellent deal flow. FS lists one or two loans being listed every week. This makes it easier for investors with a healthy balance to diversify across many loans in a shorter period of time.
- Compound interest is the most powerful force in the universe and on FS there are plenty of opportunities to harness this force!
- International investors can get exposure to Sterling while earning a yeild.
Threats of Funding Secure peer to peer loans
- Late repayment of loans is not uncommon. Lenders try to sell loans that are close to maturity to mitigate default risk.
- Tax liability originates at the end of the loan; this responsibility is passed on to whoever owns the loan at maturity. Beware when dealing with loans on the secondary market.
- Asset value is crucial to accurate loan to value (LTV) estimations. If the asset valuation process is carried out incorrectly, investors will be exposed to more risk than they initially thought. Although to my knowledge this has not been the case with FS, investors should keep a close eye on the valuations.
Funding Secure is an excellent peer to peer lending provider for those considering dipping their toe in peer to peer lending. There are risks; the capital is in danger. The assets backing the loan, are given a market value at the start of the loan, this valuation can change by the time the loan matures. Diversification across seperate loans is crucial. The interest rates are interesting and attractive and can enhance an investment portfolio by providing diversification outside of the stock market.
What was your FundingSecure experience? Let us know in the comments.