Signposting to alternatives needs to begin earlier than a bank rejection letter

The government consultation into the mandatory referral of small businesses from banks to alternative providers, announced in the Chancellor’s Budget in March, closed last Friday and Funding Circle provided its recommendations to the consultation.

Mandatory referrals have received a great deal of interest from the small business finance community (both alternative and traditional) and could provide us all with a big opportunity to help more small businesses whilst increasing lending opportunities for investors.

Crucially though, we believe that a referral needs to take place much earlier than it currently does. Industry data shows that 50% of businesses exploring finance with their bank do not reach the formal application stage, 61% don’t get to the formal rejection stage, and only 12% actually receive a rejection letter from the bank. Signposting to alternatives therefore needs to start much sooner than the formal rejection stage.

Funding Circle is proposing that the government mandates banks to signpost alternative finance providers much earlier in the process, either during initial face to face meetings with a business owner, or in early marketing materials. There are many situations where a bank is willing to lend but on terms that are not acceptable to the business and it is important alternative providers at signposted at this stage.

This signposting could either be directly to alternative providers, such as Funding Circle, or to an independent platform that provides applicable information and contact details for vetted alternative finance providers. We currently suggest businesses who don’t meet our lending criteria look at their options via the alternativebusinessfunding.co.uk portal.

We believe that working closer together, with both banks and other alternative providers, to ensure the business community receives the right signposting at the right time, will ensure businesses access the finance they need to grow, creating more lending opportunities for investors.  

We are supportive of the consultation and looking forward to seeing the government’s recommendations.

News

Whole loans trial and 51 new listings

Week 17: 21 – 27 April 2014

Over £3 million made its way to businesses across the UK last week and we saw 51 new lending opportunities listed on the marketplace, including thirteen loans for over £100,000. Nearly half (24) of the new loans were for working capital and just under a third (18) were for expansion and growth. This week the Midlands saw the most businesses listed.

New loans

There were 51 new business loans listed last week and there are currently 41 auctions on the marketplace.

The total value of the new listed loans was £3,108,000; that’s an average of £60,941 per loan. The largest loan value was £150,000 and the smallest loan value was £10,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn. Number of loans and value of loans are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 21-Apr represents the week of 21st – 27th April.

Weekly average gross yield (2 weeks rolling)

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Number of listed loans per week

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Listed loan value per week

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News you should know about

Whole loans trial from 1 May

We announced last week that we will be trialling listing whole loans to help us to continue to grow and become a significant part of the small business lending market. You can read more on our blog and FAQs as well as join the discussion on our forum.

Loans defaulted last week

Portable water provider. Loan ID 2612

This business has been going for nine years but we understand the borrower discovered some financial anomalies created by certain employees shortly after taking the loan. This resulted in the borrower having to pay a number of invoices which it could not afford due to the seasonality of the business. The business has entered into administration in order to precipitate a sale to a third party.The original loan amount was £100,000 and all 1490 investors have been notified.

Our collections and recoveries team are working to recover the outstanding amounts for this  loan.

Enjoy lending, The Funding Circle Team

 

Investment through Funding Circle involves lending to small and medium sized businesses, so your investment can go down as well as up. Remember, past returns are not necessarily a guide to future returns.

Introducing whole loans

It’s been a fantastic start to the year at Funding Circle. The announcement of additional funding by the Government-backed British Business Bank and the introduction of regulation by the FCA helped to drive a record quarter of lending, with more than £53 million lent to small businesses across the UK – more than two and a half times the amount during the same period of 2013.

At Funding Circle our goal is to build a better financial world by helping as many businesses as possible to access finance, and investors to earn attractive returns.

Over the last few months you will have seen an increase in lending opportunities with record levels of demand from businesses across the UK. Within the next 12 months we expect demand to increase substantially, and our aim over the next few years is to grow to become a significant part of the small business lending market. In the UK, this is an estimated £7.5bn per month market.

To achieve this we want to ensure we have a diverse range of investors at Funding Circle. More investors helps us to attract more businesses, as we have seen from the Government’s involvement. This helps to deliver more lending opportunities for everyone and ensures long-term stability and sustainability for the Funding Circle marketplace.

As you will probably be aware, we have mentioned before that there is a lot of interest from organisations, such as pension funds, insurance companies, family offices and hedge funds, to join Funding Circle to lend.

We have been considering the best way to introduce these new types of investors to the marketplace in a way that is sustainable and also protects the experience of individual investors.

As part of our considerations we have closely followed the developments of the US peer-to-peer lending market over the last 18 months, where larger investors have purchased whole loans rather than lots of individual loan parts. This has shown to us that introducing the ability for investors to buy whole loans is a successful way of creating more lending opportunities for everyone, whilst also protecting individual investors’ Funding Circle experience.

Today we’re announcing that from early May we will be starting a one month ‘whole loans’ trial with a small group of non-bank financial institutions who will lend up to £3m in total. These whole loans will be purchased in full and it will not be possible for individual loan parts to be purchased, as is the case with the ‘partial loans’ that are listed today.

Initially, this will be a closed trial and last for one month beginning 1st May. During the trial whole loans will not be visible on the marketplace; however we will continue to publish details of every loan in our loan book and clearly indicate whether a loan is a whole loan or a partial loan.

While we anticipate most investors will continue to prefer lending on partial loans, once the trial has been successfully completed we will make whole loans available to any interested investors. You can register your interest after the trial by contacting us at community@fundingcircle.com.

Today’s news does not mean individual investors will become any less important to us. Helping individuals earn attractive returns by backing British businesses is in the DNA of Funding Circle. It is something we are very proud of and will remain a core part of the business as we grow.

For more information about today’s news, visit our FAQs or join us on our forum where we will be discussing this in more detail. You can also read more here about how whole loans have worked in the US.

The Funding Circle team

Over £3 million lent and nine £100,000+ loans listed

Week 16: 14 – 20 April 2014

Over £3 million made its way to businesses across the UK last week and we saw 57 new lending opportunities listed on the marketplace, including nine loans for over £100,000. The South East saw the most businesses listed, with the North West and Midlands coming a close second. The majority were in the manufacturing and professional services sectors.

New loans

There were 57 new business loans listed last week and there are currently 36 auctions on the marketplace.

The total value of the new listed loans was £3,059,400; that’s an average of £53,673 per loan. The largest loan value was £265,200 and the smallest loan value was £10,000.

Business loans still available for bidding on for the next 3 days or more:

Weekly marketplace trends

These graphs show the most recent activity on the marketplace. The average gross yield graph is reported weekly and shows a rolling two week average of gross yields. This calculation assumes you reinvest your interest each month and therefore includes the compound interest you earn. Number of loans and value of loans are reported weekly. The dates on the graph should be read as ‘week beginning’, for example: 14-Apr represents the week of 14th – 20th April.

Weekly average gross yield (2 weeks rolling)

Yield.jpg

Number of listed loans per week

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Listed loan value per week

Value.jpg

News you should know about

Business case study video

Did you help a 40 year old yarn business based in Bradford expand and modernise? Watch the video here.

Loans defaulted last week

Language school. Loan ID 251 and 1336

This business has been trading for twelve years and has fallen into arrears with repayments by more than three months on two Funding Circle loans. The first was taken three years ago for £35,000 and the second was taken two years ago for 30,000. All 912 investors have been notified.

Renewable energy business. Loan ID 2612

This family business of 35 years has been placed in voluntary liquidation and we are in the process of contacting the guarantors to seek a full recovery. The original loan amount was £20,000 and all 292 investors have been notified.

Our collections and recoveries team are working to recover the outstanding amounts for all of these loans.

Enjoy lending, The Funding Circle Team

* Terms & conditions apply

Investment through Funding Circle involves lending to small and medium sized businesses, so your investment can go down as well as up. Remember, past returns are not necessarily a guide to future returns.

Video: Did you help a 40 year old yarn business expand and modernise?

Texere Yarns is based in Bradford and supplies knitting wool and yarns in a range of fibres, textures and colours for textile crafts. The business began about 40 years ago, and ‘texere’ means ‘to weave’ in latin.

In January, they took out a business loan through Funding Circle which was funded by 624 people and organisations across the UK, including the University of Huddersfield, where all of the interest earned goes towards a student scholarship programme. The loan will help Texere Yarns expand and modernise their operations.

In this video you’ll meet Managing Director, Guy Richardson, and hear first-hand about how the business has grown over four decades and why they chose Funding Circle.

Video: Did you help a South London restaurant open its second set of doors?

The Exhibition Rooms is an award-winning restaurant and bar based in Crystal Palace, winning Time Out’s best local restaurant in 2009. It was started in 2008 by two friends, David Massey and Geoff Ridgeon, and has since gained an excellent reputation on a number of restaurant review sites. Geoff is an experienced restaurateur and David is the head chef, having worked alongside Anthony Worrall Thompson.

In February, they took out a business loan through Funding Circle which was funded by 763 people and organisations across the UK, so they could develop a new restaurant site.

In this video you’ll meet David and Geoff and hear from them first-hand about how their restaurant started and why they believe they’ve got something special.

ISAs, regulation and the Budget. March industry news

Arguably one of the most important months in the industry’s history, March saw peer-to-peer lending make headlines across the board. The Financial Conduct Authority (FCA) kicked a busy month off with the publication of their final rules ahead of formal regulation coming in earlier this week on the 1st April. This was closely followed by the Budget where the Chancellor announced that peer-to-peer lending would be included within ISAs, as well as a consultation into the mandatory referral of small businesses to alternative funders by banks, where they cannot lend. Finally this bumper round-up finishes with a few amazing stories from businesses who have borrowed through Funding Circle.

FCA to regulate peer-to-peer lending firms

On 6 March the FCA published the final rules for regulating the peer-to-peer lending industry. Our co-founder James Meekings was on BBC Breakfast discussing how the introduction of proportionate regulation is a step-change for the industry and will cement our position within the wider financial landscape. BBC News Online also covered the news, as well as Reuters, Financial Times, and This is Money.

Budget 2014: Peer-to-peer lending allowed for ISAs

As part of the Chancellor’s ISA reforms, he announced in the Budget that peer-to-peer lending would be included within an ISA wrapper. This was trialled in the Autumn Statement last year and we’re part of the ongoing consultation with the Treasury about timings and mechanics of how it will work. It’s a huge win for investors as it will make their investments tax free up to a certain amount. BBC News Online, Daily Telegraph, Reuters and This is Money also covered the news. Funding Circle’s new Innovative Finance ISA can be found here

Hope on the horizon for 250,000 rejected business loan applications after Chancellor gives go-ahead for High Street referral talks

Included in the Budget was a second big boost to the alternative finance industry – although this one was for businesses. The Chancellor announced a new consultation into the referral of small businesses to alternative funders by the banks, where they are not able to lend. Perfect timing, as only a week before we helped to launch the Alternative Business Funding portal which allows businesses to see the range of non-bank options out there and could be used for lead sharing. The Times covered the launch here and here.

And finally, we wanted to finish with some inspiring stories from businesses who have borrowed through Funding Circle. Read about Hales Gallery, Moo Free Chocolates and the Fresh Pasta Company.

Cashback & £6.9m of new loans

Week 13: 24 – 30 March 2014

It was the biggest week to date for the number of loans listed on the marketplace, with 121 new lending opportunities available, totalling nearly £7 million.

Funding Circle investors have also secured interest rates of up to 13.5%, 14.6% and 15%* on loans in the A+, A and B risk bands over the past 7 days, and with 1% cashback** available on certain loan requests, it’s an exciting time to lend.

New loans

There were 121 new business loans listed last week and there are currently 91 auctions on the marketplace.

The total value of the new listed loans was £6,859,760; that’s an average of £56,692 per loan. The largest loan value was £156,260 and the smallest loan value was £10,000.

Business loans still available for bidding on for the next 3 days or more:

News you should know about

A great budget for peer-to-peer lending

In the March Budget it was revealed that peer-to-peer lending will be included in ISAs and there will be a consultation into the referral of small business leads from banks to alternative funders.

Community Forum

The forum was down last week for maintenance but it is back up and running and it has a new look too. Start talking to others on our community forum.

Loans defaulted last week

Printers and designers. Loan ID 2222

This business designs and prints marketing materials and has fallen into arrears with repayments. The original loan amount was £25,000 and all 379 investors have been notified.

Paint supplier. Loan ID 466

This South Shields business has been trading since 1974 and has fallen into arrears. The original loan amount was £50,000 and all 479 investors have been notified.

Our insolvency team are working to recover the outstanding amounts for all of these loan.

Enjoy lending, The Funding Circle Team

 

 

*Based on successful interest rate bids on all loans accepted between 25/03/2014 and 31/03/2014. See our statistics page for the latest accepted rates.

**Terms & conditions apply.

Investment through Funding Circle involves lending to small and medium sized businesses, so your investment can go down as well as up. Remember, past returns are not necessarily a guide to future returns.