myi: Where did the idea for Funding Circle come about?
Funding Circle launched in August 2010 in direct response to the uncompetitive small business lending market. The top four high street banks contribute over 90% of the lending market to small and medium-sized businesses, so there was no desire to challenge the status quo.
At the same time, the low Bank of England base rate meant savers were getting poor returns on their investments, so we felt there was an opportunity to bring these two groups together. We wanted to create a model that enabled people to receive high, stable returns for the long-term, and businesses gain low cost finance to expand and develop.
myi: What opportunities has the recession presented for you?
The global downturn has helped to accelerate our growth, but the industry was in desperate need of a shake-up before the financial crisis began in 2008.
Until recently, the small business lending market lacked any form of diversity or competition, which meant there was a severe lack of choice for intermediaries and businesses alike looking to access finance.
As the global economic crisis has bitten, the appetite for risk-based lending among banks has evaporated - net lending to small businesses has been in decline since 2008. The lack of finance available for small businesses has had a stifling impact on the wider economic recovery.
We have seen the creation of a number of Government-backed schemes aimed at improving the flow of credit to small businesses; but despite continued Government pressure the flow of credit to small businesses has not improved. We believe, this is because the processes involved with bank lending are outdated.
As a result the Government has turned to businesses, like Funding Circle, to help solve the lending impasse.
myi: In light of recent events in the industry, do you think people are more inclined to prefer the peer-to-peer model of lending?
Our research shows that there has been a 67% increase in search terms for “alternative business finance” in the last month. Much of this has to do with the recent banking scandal. However, it isn’t solely down to this. Over the last few years, I think business owners have looked at the traditional banking model and said “this doesn’t work for me anymore”. This in turn, makes the role of the finance broker ever more important when accessing finance for their clients.
Before Funding Circle launched, we spoke to businesses about their experience of dealing with banks. We found that actually half of them didn’t want the traditional sales approach they just wanted access to quick and flexible finance. We found that more and more businesses were prepared to have a different relationship if it meant being able to get hold of finance quickly.
The fact that Project Merlin, Credit Easing and other government-backed bank-led initiatives have failed is testament to the fact that many businesses don’t want to use traditional methods. The process of applying for a bank loan is outdated - it takes far too long and is too inflexible to suit a business's need.
Instead, businesses are turning towards new and innovative options, like Funding Circle, that provide them with finance in the way they want.
myi: Do you think there will be many major changes in the coming year?
Over the next 12 months we want to continue to improve and innovate our services. This will include introducing new products to market and refining our services so that intermediaries, as well as borrowers and lenders receive the best experience possible. We are looking to increase headcount from 35 to 80.
myi: What has been Funding Circle’s biggest achievement to date?
Until the launch of Funding Circle in August 2010, small business lending was dominated by the major high street banks. Through Funding Circle, that dominance is being challenged.
We are committed to building a lasting legacy to banks and providing genuine choice for intermediaries when it comes to accessing finance for their business clients. At present, the top five high street banks account for 90% of all small business lending, so the industry is in desperate need for greater competition.
We expect to lend more than £50m in 2012 and approximately £200 million in 2013. This represents enormous growth compared to last year – especially considering the size and scale of other organisations competing in this industry.
Funding Circle is the most significant disruption to the small business lending market of the last decade. An industry that was once slow and uncompetitive has been challenged by a new player, offering better returns for investors and easier access to both businesses and investors. In time, we believe Funding Circle will become the business lending exchange in the UK.
myi: What types of businesses does Funding Circle lend to?
Funding Circle lends to businesses across all sectors including, but not limited to, manufacturing, engineering, retail and services. Businesses must be stable and creditworthy and loans can be for any purpose except direct property construction. We lend up to £100,000 unsecured, and up to £250,000 secured, over terms of up to five years.
myi: What kind of response have you had from the financial community?
Since we launched the feedback has been fantastic. We have had an overwhelming response from the intermediary community and are looking to continue to grow our network of introducers. Businesses no longer have to waste time and energy with their banks and have access to finance in days, rather than
