People Lend 1m Pounds Directly to Small Businesses to Defy Banks in Just 10 Weeks

LEEDS, England, Nov. 4, 2010 /PRNewswire/ -- The British public has defied banks and lent 1m pounds 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 business 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 pounds
• 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 pounds and 50,000 pounds 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 pounds 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.(i) Despite this, they are often dismissed by banks and even the recent Taskforce report(ii) 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 pounds 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."

Notes to editors

Funding Circle (www.fundingcircle.com) is the first ever online marketplace to enable savers and investors to sidestep banks and lend directly to small businesses.  Funding Circle differs from other social lending platforms in that it facilitates loans to businesses, rather than consumers. It provides low cost finance for creditworthy, small UK firms frustrated by the loan terms offered by the high street banks.

The monthly repayment loans available are for either one or three years and for between 5,000 pounds and 50,000 pounds.  Each loan will be 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 on the platform have typically been receiving interest rates of between 6-9 per cent, several percentage points above savings-account rates in banks.

Funding Circle has been co-founded by Samir Desai (formerly of Olivant & the Boston Consulting Group), James Meekings (formerly of OC&C Strategy Consultants) and Andrew Mullinger (formerly of Citigroup, Ernst & Young and Nomura).

Read more about the team here.

Funding Circle is also provided to members of the Forum of Private Business as part of the organisation's Finance Director business support solution, which is a range of services offering complete reassurance across all financial business matters. The Forum is a not-for-profit organisation, providing comprehensive business support, protection and reassurance to small to medium-sized businesses across the UK.  It provides practical, tailored solutions that promote business success through expert advice and guidance, and by being the co-ordinated voice of its small business members in government.

(i) Department for Business Innovation & Skills, SME Statistics 2008, p1.

(ii)'Supporting UK business: The report of the Business Finance Taskforce', October 2010.

SOURCE Funding Circle