Funding Circle

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Funding Circle Limited
TypeLtd.
FoundedUnited Kingdom (2010)
HeadquartersLondon, England, UK
Area servedUK
ProductsFinancial Services
Websitehttp://www.fundingcircle.com/
 
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Funding Circle Limited
TypeLtd.
FoundedUnited Kingdom (2010)
HeadquartersLondon, England, UK
Area servedUK
ProductsFinancial Services
Websitehttp://www.fundingcircle.com/

Funding Circle is an online portal which allows savers to lend money directly to small businesses.[1] The portal is the first site to use the process of peer-to-peer lending for business funding in the UK.[2] As of July 2013, Funding Circle has facilitated £127 million in loans to small and medium sized firms.[3]

History[edit source | edit]

Funding Circle is based in the UK and launched August 2010.[1] It was launched at a time when small businesses were struggling to obtain finance from traditional channels.[4] In its first 10 weeks savers used the platform to invest more than £1 million into small businesses.[1] It received £2.5 million in funding from Index Ventures in April 2011[5]

System[edit source | edit]

The website provides a platform in which lenders can browse businesses that Funding Circle has underwritten and approved for lending.[6] Lenders bid an amount and an interest rate in an auction style to become part of the loan. Every loan request is made up of hundreds of lenders each lending a fraction of the total loan. Each lender lends a small percentage of their total funds to lots of different businesses.[7]

Funding Circle also has an Autobid function, where the system automatically bids on loans on the lender's behalf after the lender specifies a target interest rate.[2]

The website's concept is similar to that of peer-to-peer lending site Zopa, where people lend their money to individuals.[2]

Risk and regulation[edit source | edit]

If a borrower fails to fully repay the loan then the lender risks losing part of his or her return. To mitigate against this, Funding Circle recommends that users lend to lots of businesses, and employs the same credit checks that banks use on businesses.[2]

Funding Circle also employs the same credit checks that banks use, including credit checking each business through Experian and splitting businesses into three risk bands (A+, A, B, C, and C-). If a business defaults, Funding Circle will pursue the business owner to recover the remaining part of the loan.[2]

In partnership with Zopa and RateSetter, Funding Circle launched a trade body, the P2P Finance Association, with the stated goal of "ensuring high minimum standards of protection" for lenders and borrowers in the industry. The association will also lobby the UK Government to regulate the industry itself.[8]

Returns[edit source | edit]

Because lenders choose to which businesses and at what rate they lend, returns for lenders using Funding Circle vary from person to person. However, since the company was founded in August 2010, lenders have received an average return of 8.3 per cent before fees and taxes.[9]

References[edit source | edit]

  1. ^ a b c Dan Hyde (18 September 2010). "How savers get 9% rates and easy access". This is Money. Retrieved 2011-03-11. 
  2. ^ a b c d e Patrick Collinson (18 September 2010). "Peer-to-peer lending and saving: Making everyone happy". The Guardian. Retrieved 2011-03-11. 
  3. ^ [1]
  4. ^ Sharlene Goff and Norma Cohen (30 August 2010). "Bank lending: The manager says no". Financial Times. Retrieved 2011-03-11. 
  5. ^ Richard Tyler (12 April 2011). "Funding Circle expands its small business reach". The Telegraph. Retrieved 2011-03-11. 
  6. ^ "Barclays criticises small business lending targets". BBC News. 13 August 2010. Retrieved 2011-03-11. 
  7. ^ "The mother of invention". The Economist. 30 September 2010. Retrieved 2011-03-11. 
  8. ^ Cara Waters (15 August 2011). "Peer-to-peer finance regulator launched". FT Adviser. Retrieved 2011-10-10. 
  9. ^ James Hurley (10 October 2011). "Tycoons back online marketplace offering funding to small businesses". The Telegraph. Retrieved 2011-10-10. 

External links[edit source | edit]