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Alternative finance for small businesses

By Aaron Lawes

In late 2018, Funding Circle became the first lender of its type to float on the London Stock Exchange, and is now valued at more than £1.3bn.  We thought to commemorate the event we would blog on Funding Circle and the wider Peer to Peer / Alternative Finance market.

A Peer to Peer lender: Born in the financial crisis

Funding Circle was born following the financial crisis of 2008 amid, a reduced appetite from major lenders to lend to small businesses.

The idea was simple, to create an online marketplace offering small businesses the opportunity to apply to borrow money from a pool of funds provided by both individuals and other businesses – peer to peer lending.

Peer to peer lending has since become big business and continued to grow year on year.  The P2PFA reports that during 2017, £3,145,098,842 in peer to peer loans were facilitated.

The industry became regulated by the Financial Conduct Authority from 1 April 2014.

Aiming to be the first choice

More than 50,000 small businesses and 80,000 investors have now used Funding Circle, which expanded to the US in 2013 and moved into Germany and the Netherlands in 2015.

The firm’s founder, Samir Desai was recently featured in the BBC’s weekly series “The Boss” says “The business continues to grow rapidly, from our perspective we want to be the first choice for small businesses globally.”

The firm recently announced that loans under management (excluding property) with Funding Circle totalled £2.8bn as of 30 September 2018, up 61% from 30 September 2017.  This is compared with loans held with traditional high street lenders totalling £262.3bn at November 2018.

Statistics recently presented to us by Funding Circle included (see below):

  • £5 billion+ originated through the platform
  • 45,000+ small businesses supported
  • 75,000+ jobs created
  • £350+ million originated in Q1 of 2018 (UK)

Traditional lending isn’t dead

  • Almost 70,000 new loans and overdrafts approved totalling £7bn in Q3 2018
  • Eight out of ten applications for SME Finance approved by Banks

(source)

Funding Circle loan facilities

Loan facilities can range between £5,000 to £1,000,000 for a minimum period of 6 months to a maximum period of five years. Unsecured loans are available to maximum of £350k, with no Early Redemption Penalties but Personal Guarantees (PG) are always taken (as they are with a number of the unsecured lenders – you should take legal advice on the implications of the PGs).  Funding Circles key credit criteria currently include:

  • No adverse credit history
  • No CCJ’s outstanding > £1k
  • Beneficial ownership must be in the UK
  • Minimum of two years trading history (Ltd, LLPs, Partnerships and Sole Traders)

PKF Francis Clark and Alternative Finance

Across PKF Francis Clark, many of our clients have successfully obtained finance from Funding Circle and other Alternative Finance providers and we have good direct contacts with a number of these.  For example, Funding Circle recently did a tour of our offices updating us on developments on the platform.

In addition, as part of the PKF network of firms we have partnered with Capitalise; a platform that enables you to compare a broad selection of finance products from the UK’s leading mainstream and independent lenders.

If your business has a finance requirement, please do not hesitate to contact your usual PKF Francis Clark contact.

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