By Claire West
The British public has defied banks and lent £1m to the UK’s small businesses via Funding Circle(www.fundingcircle.com) in its first 10 weeks. Funding Circle is the UK’s first ever online marketplace where people can directly lend to small businesses. The social lending platform’s success highlights the pent up demand for affordable finance from small businesses and the desire from consumers for better rates of interest on their money than available from banks.
•35 credit-worthy businesses across the country have accepted loans via Funding Circle ranging from a water treatment company in Scotland, to a legal services provider in North Wales and a t-shirt printing company in London. Expansion / growth capital accounts for approximately half of all loans.
•Average loan size of £30,000
•Average interest rate 8.2 per cent, substantially below the 12 per cent that banks typically charge businesses
•1,600 members with lenders aged from 18 to over 80
Businesses can borrow between £5,000 and £50,000 for either one or three years with the loans repayable monthly. Each loan is comprised of small amounts of borrowing from many different people who compete to lend to the business in question enabling it to borrow at a better rate. With no bank in the middle, both lenders and borrowers achieve a better deal.
Lenders set interest rates themselves with the lowest offers being accepted by the borrowers. To date lenders have received 8.2 per cent annual interest on average which far exceeds the typical savings account which pays less than 1 per cent.
The Funding Circle model has been designed to reduce risk to lenders. Experienced Funding Circle underwriters comprehensively assess each application using the same information that banks use and only allow established and creditworthy businesses into the marketplace. Approved borrowers are then split into risk bands to give lenders a clear indication of the level of risk entailed in lending to them. To date, all businesses have fully repaid on time.
Plugging the gap left by the banks
Funding Circle co-founder, James Meekings, said:
“The response to Funding Circle has been phenomenal. For consumers to lend £1 million to businesses via the site in just 10 weeks highlights the public’s appetite to support our small business community whilst also earning themselves a fantastic return. Small businesses are the backbone of the UK economy accounting for 99 per cent of all UK enterprise and 50 per cent of private sector employment. Despite this, they are often dismissed by banks and even the recent Taskforce report signed by the heads of six of the major banks fails to address the provision of support needed by small businesses. Funding Circle is helping to plug that gap.”
TutorCare, a provider of training courses based in West Sussex secured a loan of £40,000 at a rate of 8% via Funding Circle.
Gareth Jones of TutorCare said:
"It's difficult to get banks to cough up these days, despite the fact we've been up and running - and making a profit - for three years and the rates they are charging are way over the odds.
"Getting loans from banks in the past has been tedious - you almost have to go begging. But with Funding Circle it was actually fun and interactive as people bid to lend you the money.
"Funding Circle is exactly what small businesses need to get them through these tough times. You can't grow, take on more staff and boost the economy without the funds to put into your business."
Geoff Chapman, a Funding Circle lender added: “I like the idea that I am helping small businesses to be successful and in turn be helping the economy — they are vital and employ large numbers of people. On top of this I’m making a great return.”
Phil Orford, Chief Executive of the Forum for Private Business, said:
“The borrowing landscape is beginning to improve for British small businesses thanks to Funding Circle’s service. We are reassured by the attention currently being paid to the difficulties facing small businesses and hope funding will become increasingly available to small companies, which are so valuable to the British economy.”