Funding Circle offers investors 1% cashback and iPad Mini

If you're looking to invest you can get 1% cashback and the latest Apple gadget with Funding Circle.

Funding Circle is offering 1% cashback to all investors that successfully lend on new loan requests from today, for a limited period.

This offer applies to new loans found in the marketplace with 1% cashback in the title. Cashback is paid into your Funding Circle account once the borrower accepts the loan offer and the money is transferred.

Meanwhile for those able to invest larger sums an even more appealing offer is available in the shape of Apple’s latest gadget. Those able to invest £20,000 or more within the offer period will qualify for a 16GB white iPad Mini. Unlike the cashback deal, this also includes money lent in the secondary market where investors sell off their loans as well as through bidding on new loans in the marketplace.

Play your cards right with your £20,000 investment and lend on new loans and you could earn £200 cashback as well as get a new iPad Mini.

How Funding Circle works

Funding Circle acts as an online marketplace that helps to match businesses that need to borrow with ordinary people that are looking for a way to invest their money.

You can become an investor for as little as £20 and put in as much as you like.

When you sign up you can research businesses in the marketplace to decide which you would like to lend to.

Businesses are classed according to a risk profile. A+ is the lowest risk category with current average yields of 7.3% before fees and bad debt, while businesses with a C rating are the riskiest, but have the largest gross yield of 9.4% before fees and bad debt.

Once you have pinpointed the businesses you would like to invest in, you can place a bid which details how much you are willing to lend and at what rate of interest.  Alternatively you can decide the rate you want to lend at and use the Autobid tool that does it all for you.

Bidding is open for 14 days. So if you want to get started quickly you can opt to buy loan parts from other investors instead.

Once you’ve invested your money you receive repayments with interest into your Funding Circle account which you can reinvest or withdraw.

Funding Circle charges a 1% servicing fee on the payment you receive each month plus a 0.25% sale fee if you sell the loan part.

Even with the fees and the bad debt this form of peer-to-peer lending can offer a far higher return than any savings account is paying at the moment.

The pros and cons

If you like the sound of the offer but you’re still undecided on whether to become an investor we’ve listed some pros and cons to help.

Pros

• Investing with Funding Circle can help kick-start the economy by directly lending to businesses that need cash.

• Businesses are carefully credit checked by a team of in-house underwriters and must be at least two years old to be accepted.
• Investing offers far better yields than a savings account.
• Repayments with interest are paid into your account monthly that you can withdraw or reinvest.
• Missed payments are chased by Funding Circle which uses the same system as the banks.
• You can limit risk by spreading your investment out. So £5,000 could be lent in £20 chunks to 250 businesses.

Cons

• A business might fail and not be able to pay the loan back. The stress of waiting for Funding Circle to chase the money is not what you would get with a savings account.
• In order to access your money you need to sell your loan to another investor. Funding Circle says this takes two days on average and investors are keen to buy existing loans, rather than waiting for an auction to end.
• Funding Circle, like other peer-to-peer lending services, is not regulated by the Financial Services Authority and not covered by the Financial Compensation Scheme. This means that you are not covered by the normal protections when you invest but there is the P2P Finance Association, which means loans can still be serviced even if the broker goes bust.

Alternatives

There are other options if you have money and want to put it to good use.

Seedrs is a place you can invest between £10 and £150,000 in start-up businesses. But the risks compared to Funding Circle are far greater as these are all new ventures rather than companies established for a number of years.  

If you like the idea of social investing, but would prefer to lend to an individual rather than a business, RateSetter, Encash and Zopa are the places to go.

lovemoney.com editor, John Fitzsimons, has started an account with RateSetter. Read: Why I've started saving with RateSetter to find out more about his experience.

More on peer to peer:

How Zopa beats the stock market

We don't need the banks: why Zopa, RateSetter and Funding Circle are the future of banking

Encash: a new rival for Zopa, RateSetter and Funding Circle

Why lending through sites like Funding Circle can help boost British business