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Funding Circle for Business Loans
Peer-to-peer lending sites are still a growing phenomenon in the UK. Their publicity efforts tend to centre on their benefits for investors, mainly the relatively high interest rates they offer to savers. The success of the sites depends on winning over lenders looking for a home for their savings: there is less material out there about their advantages from the point of view of borrowers.
Its assumed that potential borrowers, particularly business borrowers, will find their own way to the sites with minimal encouragement, given the tight credit market of recent years.
If you run a company thats in need of investment, the financial climate isnt easy. Its hard to get backing from the banks, even for small loans. What are your options? Of the top three UK peer-to-peer sites, the biggest one for business borrowing is Funding Circle (FC).
Who can borrow through Funding Circle?
A business is eligible to apply for a loan of between £5,000 and £1,000,000, if it
* Has a turnover (not profit) of over £100,000 per annum
* Has filed accounts at Companies House for at least two years
* Is a limited company or LLP, not a business run by an individual or a partnership
The loans are repayable over a period between six months and five years. A personal guarantee for the loan is expected in all cases, and for larger loans over £100,000, the site requires security to be given, either on a specific asset to be bought with the loan proceeds, or generally over company assets.
How does it work for borrowers?
A business needing to borrow must initially complete an online application. Funding Circle estimates that should take about 20 minutes. They aim to process the information, complete routine checks, and revert to the borrower with a decision within two days.
FC will do a credit check with Experian, and will also check with CIFAS as to whether any fraud has been recorded in connection with a company director.
The borrowers proposal may be accepted or rejected outright, or Funding Circle may request modifications in the terms or the security required. In some cases, the company may be restricted to borrowing a smaller sum that they had intended. Depending on FCs assessment of the borrowing companys financial strength, and the degree of risk in lending to them, the loan request, once accepted, will be assigned a risk band which determines the range of interest rates allowed for the loan. The rates range between 7.2% and 11.5%, as at November 2013.
Once agreement has been reached on terms, the loan proposal will appear on the FC website, with information about the companys credit rating, accounts, and the purpose of the loan, together with details of any guarantee and/or security.
Within the assigned risk band, lenders can offer to lend money at their chosen rate, which is driven down in a reverse auction as successive lenders place their bids. The more popular the lending proposition, the quicker the interest rate will go down. It usually reaches the minimum for its particular risk band, but may not do so if the proposal doesnt appeal to the lender members of the site.
Appealing to lenders
To ensure the best chance of your proposal attracting the lowest interest rate for its band, make your proposal full and convincing. Describe your company mission and values, and explain why you need the money as precisely as possible.
Make sure that any issues with your credit score have been resolved with Experian as far as possible, as the company credit rating is very important to lenders. Above all, answer their questions as promptly and fully as you can, even when, as is sometimes the case, they are phrased less than diplomatically. Far fewer people will lend on a proposal with unanswered questions outstanding, or with questions they think arent answered fully.
After the auction
When the loan is fully funded, usually at the minimum rate for the band, the borrower must decide whether to accept the proposal or not.
If its accepted, the loan, consisting of 10s or 100s of small slices coming from individual investors, will be administered by FC who will distribute the repayments between the investors and chase up late payments. They will be responsible for collecting the debt through the courts if necessary, and will enforce any guarantee or security, should the loan go bad.
If you are thinking about borrowing through Funding Circle, its a good idea to get familiar with the website and watch a few auctions first. You can get an idea of the process and also the sort of questioning you may face from potential investors.
Loans: 4 Keys To Better Loans and a Better Credit Score! (Page 1 of 2)
How you manage loans impacts your FICO score more than any other factor in your credit history. It’s true, you are scored heavily on the kinds of loans you have, how many months or years you have had those loans, how much you owe, and your repayment history, are key clues that credit bureaus use to arrive at your credit score. If you can wisely manage your loans, you will add points to your credit score quickly. Here are 4 key tips…
1. When the time is right you should try to refinance your high interest loans.
If you have high interest rate loans, especially on big ticket items like a motor vehicle or home mortgage and interest rates drop two points or more in the market, investigate refinancing some or all these loans. This is especially true if your credit score improves to above 700, even above 750 would be better. But, be wise about how you carry out this tactic.
First, shop loan sources other than the creditor that has your loan now. This way you may force your current lender to compete for your continued business by offering a more favorable interest rate. At the same time, do this only with those lenders who are obviously only interested in making money on you. Stick with lenders with whom you have a good long-term relationship but advise them that you are looking for a lower rate on your loan.
When shopping for credit give potential creditors only your credit score, not your Social Security number, for them to come up with a quote. Giving your S.S. number results in inquiries on your credit report which can damage your score. When they use only your score, no inquiries are recorded.
When seeking loans, you are looking for a lower interest rate or better repayment terms or both. By getting a better interest rate you will save hundreds, perhaps thousands, of dollars in interest. At the very least, getting more favorable monthly repayment terms that you can comfortably afford, will enhance your loan repayment history and automatically improve your score.
Refinancing is ideal for someone who is living from pay-to-pay and having a tough time making their monthly bills and who has been getting late notices or collections recorded in their credit history. It’s also a good idea for someone who has been paying bills on time with no recent negatives in their credit history and who has a good credit score. They will have an easier time refinancing for a better interest rate and more favorable repayment terms.
2. This is not my favorite solution but, if you must, there are loans available for folks with a poor credit history.
If your credit score is really low and you need a loan, you should look into services that provide loans to people with poor credit scores. But, be very careful you do not go even deeper into interest rate debt. There are legitimate lenders who know that some folks with poor credit scores will still make their payments on time if given a second chance and they are willing to speak with anyone that other lenders have denied.