At Funding Circle investors lend money directly to small and medium sized businesses. The business must make repayments each month to repay investors.
Funding Circle typically takes asset security or personal guarantees from directors on loans to provide further comfort to investors that in the event that the borrower is unable to make repayments on the loan, there is security which can be enforced.
At Funding Circle, we can take three forms of security: a director’s personal guarantee, a charge across all a company’s assets (an all asset security agreement/a debenture), or a security on a specific asset (asset backed security). The security taken is dependent on a range of factors including the size and purpose of the loan.
As with all guarantees or security, Funding Circle cannot guarantee that all your loan will be recovered in the event of default of a borrower.
This form of security is a guarantee from the Director/s of the business taking the loan out. In this document, the Directors personally guarantee that if their business can’t repay the loan, they will personally repay it. Funding Circle Trustee Limited, a wholly owned subsidiary of Funding Circle Limited, will pursue the guarantors if the business cannot repay the loan for whatever reason. It is important to remember, that even with a personal guarantee, your capital is at risk.
- There are a variety of circumstances where personal guarantees may be required; the Funding Circle credit assessment team have discretion beyond these criteria to ask for personal guarantees from businesses if they think it is appropriate. Where the company is a subsidiary of another company, guarantees may be sought from the beneficial owners of that company i.e. the shareholders and owners of the parent company and ultimate owners of the business.
- Where the affordability of a loan is below certain thresholds based on monthly debt repayments (including other debt), credit limits and profitability but is still above the minimum thresholds required at Funding Circle based on our proprietary credit models.
- Where the business is small, as judged by measures such as levels of turnover, profit, assets and number of employees.
- When the shareholders’ funds of a company are low or negative (it is not uncommon for profitable, healthy small businesses to have negative shareholders’ funds).
- Where filed financial information on a company is not recent, and/or up to date management accounts are not available.
Businesses that refuse to give personal guarantees when required by us cannot borrow through Funding Circle.
Whether a loan has a personal guarantee or another form of security, or not, does not affect the risk band of a business. A personal guarantee may give additional comfort to investors, however, no loans should be considered zero risk. If a loan goes into default, Funding Circle Trustee Limited will act to recover the maximum proceeds possible, which may result in action being taken through the Courts. The timeframes for recoveries will vary on a case by case basis for loans with or without personal guarantees.
All asset security agreement
For some larger loans, Funding Circle will typically put in place an all asset security agreement. This is an agreement with the borrower that if the borrower defaults, some or all of these assets in the business can be sold or liquidated in order to repay the loan. This security is sometimes called a ‘fixed and floating charge’ because it is a general hold over all the business’s assets, rather than one in particular. Funding Circle Trustee Limited, a wholly owned subsidiary of Funding Circle Limited, holds the security on behalf of investor and registers charges at Companies House. This prevents other funders gaining priority security over the assets in question if they register security at a later date. Please note that, in certain circumstances, other creditors that are already lending to the business may have priority security over Funding Circle investors; if this is the case it is noted in the "Asset Security" section on the Financial Summary tab on a loan request page.
Specific asset security - asset owned
Asset backed security is control of a specific asset that the loan is being used to buy e.g. a coach, machinery, agricultural equipment etc. When a business is borrowing to purchase a large asset, Funding Circle Asset Finance, a wholly owned subsidiary of Funding Circle Limited, will own and hold title to the assets and lease these to the borrower through a hire purchase agreement at a total cost of £1 per quarter. If the borrower cannot repay the loan for whatever reason, Funding Circle Asset Finance will take control of the asset it owns and sell it to raise funds to pay to investors. Funding Circle Asset Finance takes ownership of assets, rather than registering a charge at Companies House, to protect Funding Circle investors from losing a priority hold over the assets as soon as the asset enters the business’s use. This type of security is required when a business is purchasing a specific asset with a value over £75,000. Once the business has fully repaid the loan they can purchase the asset for a nominal sum of £10, referred to as a "conditional sale."
Specific asset security – asset charge
In certain circumstances, businesses may prefer to hold title and ownership of the asset, or may be looking to secure finance against a particular asset they already own. In these instances, Funding Circle will facilitate loans secured with a charge over the specific asset - a "Chattels mortgage" - rather than Funding Circle Asset Finance holding title. Funding Circle will register these charges at Companies House and secure waivers from banks or existing charge-holders where required.
As in all asset security, Funding Circle Trustee Limited, a wholly owned subsidiary of Funding Circle Limited, will hold the security on behalf of the lender and registers the charge at Companies House. This prevents other creditors from gaining priority security over the assets in question if they register security at a later date. Property security will also be registered at the Land Registry. We will provide investors with a list of property assets in the business over which security will fall in the "Additional documents" section on the Financial Summary tab on loan request pages.