Funding Secure Closes Doors And Joins Administration – My Thoughts
Essential details on Funding Secure
I propose that all investors join the Funding Secure Action Group. The group was formed to serve as a support point to provide feedback, news and information to Funding Secure investors impacted by the platform's failure, and work together to recover investments. The group is independent and founded by Funding Secure lenders and is not affiliated with Financial Thing.
Email [email protected] for urgent questions. The administrator will send key information to investors.
What was funding secure and what happened?
Funding Secure was an online pawnbroking platform promising high interest rates to lenders willing to invest primarily in secured jewelry loans. The organization stepped away from its roots, embracing higher-risk property loans. A high-risk aspect was involved as borrowers laid 2.4 percent in monthly interest, hence the high reported lender returns.
Loans were granted mostly on property, but often on things like jewelry, paintings, wine, vehicles, etc. The secondary market offered a potential exit, but had tax consequences for buyers.
Bonus interest rates were given for greater amounts, usually £10k higher. New loan flow varied as lender demand and borrower supply shifted constantly.
Funding Secure then introduced a 30 Day Acess account targeting an average return rate of 5 percent gross, which was incredibly low for such a high-risk deal.
Funding Secure was troubled by bad loans and loan fraud where one borrower promised valuable art pieces allegedly sold during the loan period to cover other debts. This poses questions why Funding Secure didn't keep these art assets? Is this a misconduct?
In October 2018, Funding Secure owners sold 75% of their stake to an investor in what was presumably an effort to save the company.
Funding Secure entered administration on 23 October 2019.
Funding Secure's failure has come at a bad time for the fast-growing alternative finance market. FCA's tougher regulations should help, but investors need to be more educated on risk, diversification, and corporate background to be as protected as possible.
I started investing through Funding Secure in June 2015. After four years, I became increasingly dissatisfied with lending through Funding Secure (and other higher-risk lending firms), because I saw rises in default and sluggish settlements and contact on default loans. I was hopeful that Funding Secure could solve their problems, but I wasn't surprised when Funding Secure announced its administration.
I previously contacted Funding Secure requesting an interview and an office visit, but was never successful in obtaining permission. Is this lack of contact suggesting market problems? Perhaps and definitely made me prefer more cooperative companies.
According to the administrator's analysis, Funding Secure may have wrongly reported the loans insinuating creditors had lent money to Funding Secure rather than being the direct lender to the borrower. This is troubling as we put great trust in peer-to-peer companies that they legally create the appropriate loan paperwork in case of company failure or legal issues.
How to contact Funding Secure?
Email: [email protected]
UK Tel: 0800-690-6568
When did Funding Secure launch?
Were they regulated?
Yes, Financial Conduct Authority #698305 granted full permission on March 31, 2017. Funding Secure investments are not covered by FSCS (Financial Services Compensation Scheme).
FCA regulation is nothing like the FSCS, covering consumers when they deposit money in banks. The FCA reports to the UK government and is able to take criminal proceedings against businesses who breach their policies and codes of conduct.
Funding Secure’s Financial Health
Funding Secure did not report their profit and loss estimates, but you can see their company accounts.
How much interest did Funding Secure pay lenders?
Tariffs were typically 10-15 percent. Occasionally incentives were given for greater sums of investment, but you typically needed to spend £10k+ to earn such incentives.
What's the Loans length?
Loans were typically six months to one year, but loans could be repaid or extended anytime.
Which assets were used by Funding Secure to secure loans?
Items borrowed against all loans secured. These products ranged from vehicles, vessels and jewelry to properties.
What were the default loan/capital loss rates?
Of the total loans from Funding Secure, the default rate as of September 2019 was 7.6 percent, with 17.7 percent overdue. Capital loss was 8.2 percent. This default rate rose from 4.3 percent (as of September 2018). Meanwhile the capital loss rate amounted to 9.3 percent.
Here you can see loan book statistics. Be mindful that these numbers are possibly different now due to administration.
What was the default handling like?
I had some defaults on past things like jewelry, vehicles, and land. Handling delivered mixed results associated with property loans being the most troublesome as expected. I was saddened by the high number of defaults and lack of contact and hoped the new management could fix these problems.
One of my default loans restored after 429 days. The initial loan was for six months, and because the insurance was in administration for so long, fees were accrued and the recovery amount was smaller than the capital and interest owed to lenders. Instead of passing the losses on to lenders, Funding Secure agreed to repay lenders their full capital but not their interest so Funding Secure can have credit for that, but I'm sure that won't be the case with the other defaulted loans I own.
Gross loans: 29
Loans in default: 9
Active loans: 20 (8 in trouble or behind)
Of my 29 currently active loans (as of August 2019), nine loans (all property) were in default and unrecovered with five active mortgage loans in trouble or payments. Default property recovery will take years, and locating a property buyer is much harder than a jewelry buyer.
My oldest default property loan has been recovering since June 2016 and is unresolved.
Defaults are part of peer-to-peer lending, and Funding Secure is a clear example of how long default property recovery can take and how expenses can contribute to lender losses.
What now, since Funding Secure is in administration?
CG Recovery will manage all contracts (loan agreements) between borrowers and lenders. All uninvested funds should be stored separately. Now the administrator is going through the long process of bailouts and default recoveries.
This recovery cycle could take several years, and how much capital will be restored is unknown to investors. One of the main problems with administration is the administrators' burden for managing the operation. The higher the rate, the less money returns to investors.
Funding Secure Conclusion
Sadly, I wasn't surprised when Funding Secure took to administration. I saw their loan book suffer higher defaults and also saw staff reduction and people in charge leave.
Funding Secure's failure is another lesson on how critical investment diversification is. The failure also illustrates how high-interest payment investments entail high risk.
My personal loan book had seen so many defaults possibly caused by weak asset protection that I was late in finding, as my peer loan journey was early.
When I heard about the targeted 30 Day Access account and interest rate of 5 percent gross per year, I was shocked at such an bid. Five percent was far too low for that account's risk.
I am now even more skeptical about investing in property and bridging peer-to-peer loans because it's hard to determine. Some firms are providing sensible loans, I think. Only be mindful of the risks and realize that if a loan defaults, it may be a long process that takes several years to complete.
I hope for a good outcome for those who invest money by Funding Secure.
FundingSecure main features and highlights
- Peer-To-Peer Lender
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