All property loans listed on the Funding Circle marketplace will be secured against an asset held by the borrower. If the loan was to be defaulted, Funding Circle can enforce the security to repay investors. It is important to remember that although we would often anticipate a significant recovery for investors, this is not certain and there could be cases where investors do not receive back all of their investment.
First ranking legal charge
A first ranking legal charge may be held over a property, or properties, held by the borrower. A legal charge is the means by which Funding Circle can enforce the rights and interests over a property on behalf of investors, and will be recorded in the Land Registry. In the case of a first ranking legal charge, Funding Circle will take precedence over all other lenders to the borrower if the property is sold, so will be first in line to receive funds from a sale.
Second ranking legal charge
A second ranking legal charge ranks behind the first legal charge holder. If the property is sold, the first charge holder will be repaid before the second charge holder receives any funds.
Funding Circle may request a fixed and floating charge debenture. A fixed charge will be held against the borrower’s assets (typically properties). The borrower will not be able to sell these assets without Funding Circle’s permission. A floating charge is held over all of the borrower’s assets. In any liquidation or insolvency process the holder of a fixed and floating charge will be in line to receive funds from the sale after any first or second ranking charge holders, but before any unsecured creditors.
This is a guarantee from the Shareholders of the business taking the loan. In this document, the Shareholders personally guarantee to repay the loan up to the value of the Personal Guarantee. If a property finance loan is defaulted, the security held over the asset will often be sufficient to cover the loan. If market conditions change and the value of the asset falls below what is owed to investors, the Personal Guarantee provides an additional option to help recover funds for investors. Please note that a Personal Guarantee does not mean a full recovery is certain to be made in every scenario.