Funding Circle announces groundbreaking £132 million investment into British small businesses

Today we’re pleased to announce that for the first time, a global investor will be investing in small business loans through the Funding Circle UK marketplace.

A private fund, managed by New York-based KLS Diversified Asset Management, will be investing £132 million in loans to UK small businesses. The KLS-managed fund will invest in whole loans across all risk bands. They will not compete with any individual investors lending on partial loans.

Today’s news is another significant step on the journey to creating a stable and sustainable global marketplace, where creditworthy businesses borrow directly from a diverse range of investors.

Over the last four years we have seen a range of investors join Funding Circle, and today more than 36,000 individuals, the government-backed British Business Bank, 10 local councils, the University of Huddersfield, and other institutions are all helping businesses access the finance they need to grow.

As discussed previously, we have also recently received a lot of interest from institutions, such as pension funds, insurance companies, family offices and hedge funds, who would like to join Funding Circle. To enable these types of larger investors to lend to small businesses, we introduced whole loans in April this year.

Whole loans enable larger investors, like KLS, to participate on Funding Circle whilst not affecting individual investors’ Funding Circle experience,  You can read more about why we introduced whole loans in this blog post, and you can view what proportion of loans are whole or partial by downloading our loanbook on the statistics page.

Today’s news enables us to continue to grow and meet the demand from UK businesses. In November alone, investors lent a record £35 million to small businesses across the UK. As we continue to grow we will manage the allocation between partial and whole loans so that there is consistently enough lending opportunities for all investors. A more and varied range of investors means we increase the amount of lending opportunities for everyone. The amount of lending by individual investors continues to increase this year and we expect it to continue as we grow. Individual investors are part of our DNA at Funding Circle and core to the future success of the company.

For more information about today’s news, join us on our forum where we will be discussing this in more detail. You can also read more the press release announcing the news here.

The Funding Circle team

David De Koning

Head of Communications

 

14 thoughts on “Funding Circle announces groundbreaking £132 million investment into British small businesses

  1. I understand that any whole leans that do not get funded will be offered as partial loans to the wider audience is this correct? If so do/will they be flagged as such so that smaller investors can see that they have been declined by some of your biggest and likely professional investors?

    • If a whole loan is not funded it is automatically allocated to the partial loan market. When this happens, during the auction investors on the partial loan market will not view that it was originally listed as a whole loan. We would not consider these loans to pose more risk, as the loan has gone through our credit assessment process and Funding Circle has allocated the risk band, not the institutional investors, who will have different risk models.

      However, when the auction ends and the loan offer is accepted, it is entered into the loan book with the WL tag; signalling that it was originally a whole loan. You can view the loan book by going to the Statistics page and scrolling to the bottom. If you download the loan book you will see that column ‘T’ has either the PL tag (partial loan) or the WL tag (whole loan). Any loans that were previously whole loans will have more than 1 loan part (column Q).

      We have put this tag in place to try to be as transparent as possible in showing investors which loans have been randomly selected to be listed on each marketplace.

      • It’s still far from clear whether or not the institutions can cherry pick. They may well have different risk models, but they also have the time and expertise to separate the wheat from the chaff, and I’d trust their judgement over that of FC’s credit assessors, since they’re the ones who lose out if a loan goes bad. I certainly wouldn’t want to be bidding on something the institutions didn’t want, so why is this information only available after the auction is over? Why can’t it be on the main auction pages?

        “We would not consider these loans to pose more risk”
        It’s not your money being lent though. 🙁

        • My sentiments entirely. If Funding Circle really care about transparency then they need to ensure this institutional/retail loan split is crystal clear to all parties. I feel strongly that if the Institutional market declines a loan it has been offered then that should be flagged when relisted to the wider community.

          As the P2P market grows and becomes ever more regulated this is exactly the sort of area that will come under the microscope.My advice to FC would be to get ahead of the game.

  2. Reading this I am shocked that a p2p lending business should turn its back so blatantly on its initial mission, vision and values for profit seeking.
    The approach disadvantages the very people that grew the business initially.
    Where are your business ethics FC?

    • Hi Jo, our mission and vision is to create a marketplace for small business loans where any investor, big or small, can lend to creditworthy businesses who are looking to grow. In order to create a marketplace which is sustainable and able to withstand an economic downturn in the future, a diverse mix of investors is incredibly important. The institutional money that we now have on the marketplace helps us to cater for the demand that we are seeing from small businesses who are still struggling to access finance via traditional means – the mix of retail and institutional will allow us to help thousands more businesses. That being said, we can assure you that you and the other 35,000 people who currently lend through Funding Circle are at our core. As you rightly say, retail is what the business has been built on and you will continue to remain very important to us.

  3. As the principal of a SME trading for 25 years and appreciating the ebbs and flows of cash flow, investment etc., I invest in Funding Circle not only to support other similar businesses; but also to maximise our spare funds by achieving a higher return than investing through banks or building society accounts etc. If this large overseas investor takes the more attractive loans as whole loans, the future of investing in FC must be questioned. I would suggest getting monies to small businesses to stimulate the economy has been achieved once these bigger (bullying) organisations get involved.

    • Hi Alan, no one is able to pick more attractive loans. They are allocated either as a partial or whole loan on a completely random basis.

      • But after the random allocation, the institutions then get to invest in the whole loans they like (so they do in fact “pick more attractive loans”), and the ones they don’t want are offered as partial loans. Everyone else then bids on those without knowing till after the auctions finish that the loans were previously turned down. How can you not see this is wrong?

  4. Surprised FC do not see the problems of trust from its customer base if there is any lack of transparency with institutional investors effectively having ‘first dibbs’ on loans without this being clear to potential investors. FCs ratings are not perfect, so if a loan has been offered as a whole loan and rejected by institutional investors, this is relevant information. If institutions take the best loans it will lead to an adverse sample being offered to the ordinary investors.

  5. I found this news really upsetting. Why provide this opportunity to an overseas fund? Where is the reciprocal entity that feeds off US small businesses? I thought FC had largely controlled its crapitalist tendencies but I am wrong.

    • Hi John, sorry to hear that you found this upsetting. This is the first time an international investor is able to lend to British small businesses, helping to provide a much needed injection of capital to the economy. In 2008, small businesses were reliant on the big 4 banks, but now they are able to borrow from thousands of investors via Funding Circle, including 37,000 individuals like yourself, the government, local councils, and investors such as KLS. All of this is helping the economy to grow – on average a business that takes a Funding Circle loan increases headcount by 3 people. That means that you and other investors have helped to create an estimated 24,000 jobs since Funding Circle launched (approx 8,000 businesses have borrowed).

      • So where are we so far with this: loans are split randomly between institutions and us retail investors; the institutions reject certain loans and these are re-allocated to the retail pile.

        Surely the key issue is what percentage of loan requests go to the institutions. If say, the institutions are allocated 10% of total loans and of these they accept the majority, then the rejected ones being returned to the retail pool will be insignificant (especially, as due to random allocation there will be plenty of similarly ‘undesirable’ loans that never got sent to the institutions).

        But, what happens if the percentage split is reversed and 90% go to the inst’s first. Then there ARE a significant number of rejected loans in the retail pile which will ultimately increase the number of defaults experienced by us.

        So I guess the key questions are:- what is the retail/insti split?
        is the proportion allocated to the insti’s likely to increase?
        and, if it did, would there come a point where FC were prepared to guarantee a certain minimum proportion always went to retail? (3 questions)

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