I had a nasty surprise when I logged into my Funding Circle account last week to sell some of my loans and cash them out in order to fund my coming land purchase:
Yes, I discovered that they've frozen the selling of loans to 'protect small businesses' during Covid-19.
In case you don't know their bag, Funding Circle is a company which lends to small businesses in the UK, you invest and diversify to hundreds or potentially thousands of small UK businesses.
In fairness they to them they did send out an email back in April informing lenders, I just didn't bother reading it, or any other emails from the company since.
My long term plan was to always use ALL of the money I had in Funding Circle to fund my land purchase, along with my regular shares, so this was a bit of a shock, as my Funding Circle loans amount to around £9 000.
Thankfully I'd paused new lending more than a year ago, so any loans that matured were just funds sitting there so I was able to withdraw those immediately - which is more than a third of the total, and current loans are maturing at about the rate of £30 a week, the typical loan-term being around 3-5 years.
Thankfully, THANKFULLY, fucking THANKFULLY my previous task before my intended sale and withdraw (which turned into just a withdraw function) had been to take out a regular loan with a regular bank, and I took out much more than I needed, so I can easily cover the £4.5 K that's still 'stuck' in there.
Perhaps my unconscious mind anticipated something like this happening?!?
Anyway, the most important thing is that I'm not personally massively inconvenienced by this action of Funding Circle, and now it looks like I'll just be getting my money back gradually rather than having to sell immediately.
But this is a warning about 'reading the small print'
I mean clearly this 'capacity to freeze funds' which is essentially what Funding Circle have done to all investors would have been in their T and Cs, because the email they sent round informing people was very short and 'matter of fact' - and of course it was drastic circumstances that promoted this.
However, this is a bit of a shock to the system - I haven't had any trouble selling regular shares from two other regular funds, but with this P2P - yup, they've frozen them! So it's been a real heads up about the difference between P2P with Funding circle and stocks investments
However I support this move!
I invested in FC because I liked the idea of giving to small businesses, and it is precisely small businesses who are going to be struggling the most in the next couple of years - so forcing them to pay back their loans early, which is no doubt what would happen if there was a trigger sell-off with no buyers, because that's the only way Funding Circle could reclaim investor funds, what's the point in that?
I mean all selling my loans would do is push more businesses out of business, resulting in more firms having to declare as bankrupt and I'd end up facing more of a loss now, writing off a larger portion of that £5K I've still got lent out.
This way, I guess I stand more of a chance of getting more money back! I'm now in the habit of making weekly cash outs!
Final Thoughts...
It's a shame really, Funding Circle was a sound ethical choice returning me around 7% a year, now that's down to 5%, which still isn't bad, but I expect I'll have to suck up the fact that some of those remaining funds are just going to be lost.
But no one could have predicted Covid-19, so what can you do!
Thankfully I'm diversified, which has offered some protection, and my main shares regular shares fund has been going bonkers in 2020, which has more than compensated!