Funding Circle

  • Loan based crowdfunding, secured and unsecured
  • Exclusively focussed on small business
  • Operates in UK, USA, Germany, Spain and Netherlands
  • Typically loan requests turned around in 24 hours
  • Conducts credit history checks on borrowers
  • Has implemented a rating system
  • Rates range from 7% – 18%

Funding Circle is a loan platform exclusively focused on small businesses, and operates in UK, USA, Germany, Spain and the Netherlands. Businesses can borrow directly from a wide range of investors. Applications are handled and (when approved) hosted online to attract investors with funds available for successful applications within a couple of weeks

Funding Circle’s creation in 2010 coincided with a drying up of funding for small businesses in the UK as banks struggled to get to grips with the fall-out from the financial crisis. That provided an early spur for the business, creating demand among borrowers. Funding Circle’s big advantage is its speed. Most loan requests are able to be turned around within 24 hours, as opposed to weeks at a traditional bank. Also their mobile phone application allows businesses to fill out a loan application in just 7 minutes.

Funding Circle uses traditional data sources such as credit histories of business owners and data on company borrowing, but its tailored platform, with a high reliance on technology compared to traditional lenders, and its constant refining of its models gives it an edge over other players. Its ability to predict risk of borrowing in different sectors of their business market has allowed them to differentiate the interest levels charged and better align risk with reward for investors.

The development of a rating system for loan applications has allowed investors to choose the degree of risk that they are prepared to accept, and the interest rate they are likely to receive, increasing their marketplace acceptability to all investors.

Bad debt performance is critical to investor confidence and this is monitored on a daily basis, with all data available to potential, registered investors.

Funding Circle expanded its operations into the USA in 2013 by merging with the San Francisco based Endurance Lending Network, to become one of the leading peer-to-peer platforms in America. In Europe, Funding Circle’s merger with Zencap has given it a strong base across Europe. Its strategy of partnering with major high street banks is developing growth and giving those traditional funders a presence in this rapidly developing loan market. It was the first marketplace to announce a formal referral partnership with leading high street banks.

To raise finance on Funding Circle you must meet the following criteria;

  • Have 2+ years’ trading history
  • Are creditworthy: a healthy credit history
  • Have typically a minimum turnover of GBP £50k

You can apply for a business loan, either secured or unsecured, but a personal guarantee is likely to be required. For secured loans (which are likely to be at a lower rate) Funding Circle are likely to want to take a charge against the company’s assets. For the purchase of assets or property, a charge against the item purchased is also required by Funding Circle.

The initial application is brief and quick, requiring basic company information, the amount applied for, what the money is to be used for and details of the business owners. In addition, standard business data is required to be uploaded, i.e. most recently filed or formally prepared accounts and the last three months of business bank statements. And in addition they may require management accounts, depending on the age of the most recently filed or formally prepared accounts.

Once the loan application has been approved, the credit assessment team determines a risk band for your potential business loan. All successful loan requests are then automatically listed on the marketplace, which is where the funding process happens. Registered Funding Circle investors will then start offering amounts of money to fund your loan. The interest rate you pay back to the investors who lend to you will typically depend on the risk band and term of the loan, with interest rates starting at 6%. The loan can be funded by several hundred investors offering small amounts, or by one large financial organisation offering the whole amount. The loan can fund over a period of up to 14 days, although most loans fund in just a few days. As soon as the 100% target is achieved you can accept your loan online. Loans are repaid over the agreed period in monthly instalments.

There are set up fees, typically 2-5% of the loan value depending upon circumstances (which is deducted off the amount to be received). The interest rate charged depends upon your allocated risk band and the loan duration. You can repay the loan back early without penalty and you have the option to apply for further loans before the initial loan is completed.

CRUCIAL is co-funded by the EU through ERASMUS+. Project: CRUCIAL (Crowdfunding Capital) 2015-1-IE01-KA202-00862The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein