If a loan defaults, we will work with the borrower and any guarantors to recover whatever is possible and distribute any recovered funds proportionally to the investors in the loan.
If a borrower goes out of business, we will work with the administrator to recover as much as possible from the company. We will also activate any security taken at the time of the loan and invoke Personal Guarantees given by the principals. In some cases, we may choose to appoint a debt collector.
Under these circumstances, FundingKnight will keep you informed and updated with as much information as possible, so that you will be aware of the current status of any defaulted loan. We will inform you by email whenever we publish a new update, which will be shown in the ‘Updates’ tab on the loan details page.
FundingKnight believes in complete transparency when it comes to loan repayments. That is why we classify our funded loans into four categories:
Performing loans – there is no reason to believe that the loan won’t be paid. The odd payment may be late but overall we are comfortable the loan will be repaid.
Non-performing – either the borrower has a repayment due of more than 45 days or we are no longer comfortable that the loan will be repaid on time. We are in regular discussion with the borrower and will keep investors updated throughout.
Note: Loan parts may still be traded in the Marketplace, but with additional risk warnings, and the sale offer will no longer show a rating or an expected annual return to prospective buyers.
Loans in debt recovery – we have serious concerns about the borrower’s ability to meet their obligations. We still consider that some or all of the monies owed to investors will be paid, albeit generally by guarantors and/or by realisation of any security, and outside of the original payment schedule.
From this point, trading in the Marketplace is suspended. It can take a long time to recover loan debt and security, especially if care is taken to maximise the amount recovered (rather than to conclude the case quickly). In the majority of cases we are therefore unable to estimate the likely amount that may be recovered.
Loans which are “In recovery” may, if they meet HMRC’s criteria, be treated as irrecoverable for Income Tax purposes. Where this is the case, the capital written off will be reflected in your Tax summary. From 6th April 2016, loss claims will automatically be treated as losses for Income Tax and offset against your income with us.
Loans written off – we are certain there will be no future monies coming in from either security held or from personal guarantors. These loans will no longer appear on your Dashboard page, which reflects your current portfolio.