Another great Budget for marketplace lending. March industry news

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Peer-to-peer investors to get savings tax break

Hot off the heels of the announcement in the Autumn Statement that investors will be able to offset their losses against income tax from this month, the Chancellor announced last month that peer-to-peer lending would be included within the new Personal Savings Allowance. The tax break will apply to both peer-to-peer lending and cash savings, in the latest boost to the sector. Read more about what the Budget meant for your savings and investments in the Financial Times, Daily Telegraph, the Times and on our blog. After advice from HMRC, we have also made a change to the way we charge for loan servicing. Neither investors nor borrowers will pay any more, and you can read the full details here. Please get in touch with any questions.

Lending to small businesses rises sharply as confidence improves

Some positive news last month that traditional sources of finance are beginning to lend more to small businesses again. The Federation of Small Businesses conducted a study that showed 60% of loan applications were approved in the past three months compared to only 45% a year ago. As the landscape continues to become more competitive, this is only good news for small businesses who are trying to access finance. 77% of businesses who have already borrowed through Funding Circle would always come back to us first, over a bank, showing the demand that exists for fast, fair and transparent finance.

Britain’s quiet fintech revolution has begun – and we’re determined to back it

“So what is fintech?” In this article, written by Andrea Leadsom, City Minister and Economic Secretary to the Treasury, she discusses the full spectrum of financial technology  and how it is transforming the way people can lend directly to small businesses in their community and across the country. At Funding Circle, we are right in the middle of this revolution, with ever-growing awareness amongst investors and borrowers, as well as continued support from the Government to help further develop this new source of finance. An exciting future for investors and businesses in the UK is upon us.

After 10 years, has it paid to be a peer-to-peer lender?

10 years ago this month, a new way to grow and invest your money began when Zopa, a peer-to-peer lender for personal loans, launched. Since then over £2 billion has been lent out via this model in the UK alone, helping thousands of people and small businesses prosper across the country. Read more about how the industry has blossomed over the years in the Independent.

This is the future of savings – but you can profit today

This piece follows the story of a mother using peer-to-peer lending as a way to save money for her children to go to university. With £11,000 invested to begin with, and assuming she continues to deposit £50 each month, she will have saved £27,815 in 11 years. She states that she isn’t concerned that peer-to-peer lacks deposit protection because her money is lent out in small amounts to many people and companies.

UK scheme to promote alternative lenders to be running by 2016

Also to come out of the recent Budget Statement, from 2016, banks will be mandated to refer small businesses to financial companies when they aren’t able to lend. The British Bank is leading the process with careful steps to get the system implemented to become a designated clearing platform. Exciting news for those small businesses that aren’t aware of the other forms of finance and great news for us in being able to help them succeed.

Out of the pension pot and into … ? It’s time to rethink your retirement

This month, the annuity changes announced last year will come in, meaning people will have more freedom when it comes to thinking about how best to maximise their pension pots. Everyone over 55 will be able to draw down the cash in their pension and invest it how they wish. As people look to make their money work harder, peer-to-peer lending is an attractive option. Added to this, the news that the lifetime allowance in a pension has been reduced from £1.25 million to £1 million, people will be searching out higher returns from their savings and investments in order to compensate for the reduction in tax benefit. At Funding Circle, you can earn attractive returns without the volatility of the stock market, but always remember that when you lend, your capital is at risk.

Talking Tax

Included in the Budget last week were a number of new announcements relating to lending through Funding Circle. Additionally, we have recently received news from HMRC regarding changes to how investors are required to pay tax on their lending. Following these announcements we wanted to clarify what this means to investors.

Personal Savings Allowance

As some of you will be aware, the Chancellor announced in the Budget the launch of the Personal Savings Allowance. From April 2016 the first £1,000 of interest for basic rate taxpayers and the first £500 of interest for higher rate taxpayers will be tax free. Importantly this applies to both interest earned from traditional savings accounts or through peer-to-peer lending.

This is fantastic news for investors and a significant step by HMRC. We estimate this change will ensure that more than 80% of investors will now be able to earn tax free returns from Funding Circle, meaning you keep even more of your earnings.

Servicing fees

HMRC has recently confirmed that from 6th April investors will have to pay tax on the gross interest rate before deduction of fees. As a result we have made changes to the terms and conditions for investors and borrowers to clarify the way we cover the cost of loan servicing.

From April 6th we will no longer charge an annual investor fee. Instead we will take this same amount directly from the borrower repayments as a servicing fee.

There is no change to the amount paid by borrowers or the amount received by investors.

This change is reflected in clauses 8.1 and 15.1 and you can find updated investor terms and conditions here.

The loan conditions will also be changed (update to clause 5.2) to reflect the way in which fees are deducted, and you will be asked to accept them when you next bid. We hope this provides clarification.

Whilst making this change, we also made some additional amendments to the loan conditions. We have simplified the wording around the completion fee taken by Funding Circle from borrowers in clause 5.1, and deleted clause 8 which refers to our ability to restructure loans which we no longer require. This has also been removed from the terms and conditions for investors; where clauses 6.6 – 6.9 have been deleted.

Bad debt tax relief and ISA update

As we mentioned in the previous post, the Chancellor has confirmed that through self-assessment individuals will be able to make a claim for relief on losses incurred from April 2015. HMRC is still looking at the detail of this and we will provide further information once it has been clarified as to how this will work. You can read its proposed criteria for relief from bad debts here.

Additionally the Treasury has confirmed that you will be able to use your ISA to lend through Funding Circle by April 6th 2016.  We’re working with the Treasury around what type of ISA your lending will be included in and you can read more about our recommendations for a Lending ISA here.

Whilst the majority of investors will benefit from tax-free lending through the Personal Savings Allowance, these new changes will benefit every individual investor and is another sign that lending through marketplaces like Funding Circle is becoming a mainstream way for individuals to earn attractive returns on their money.

Breaking down the Budget

Today was the last Budget before the upcoming General Election and, alongside some of the headline pieces of news, the red box included a number of interesting updates for both Funding Circle investors and borrowers.

Bad debt tax relief

The main news for investors centred on the introduction of new bad debt relief for your lending through Funding Circle. This was first announced by the Chancellor in December’s Autumn Statement, but it was today confirmed that through self-assessment individuals will be able to make a claim for relief on losses incurred from April 2015. This is good news for all investors and, depending on your individual tax situation, we estimate you will soon be able to earn up to 25% more as a result of these changes.

ISA update

As expected there was no immediate update on including your lending within an ISA, however the Chancellor did confirm that results from the consultation will be released this summer, once the General Election has passed. Conversations have so far been very positive with the Treasury and we remain confident that there will be confirmation on how your lending will be able to be structured within an ISA this year. You can read more about our recommendations for a Lending ISA here.

In other tax news the Chancellor also confirmed that from next year the first £1,000 individuals earn from investments will be take free.

Business referral platform

Finally, for businesses there was some further news around access to finance and greater competition in the market. The Treasury confirmed that it will be inviting expressions of interest from platforms wishing to act as an intermediary for banks to refer on business customers to non-bank platforms. This news is designed to achieve greater collaboration between banks and non-banks and better help businesses looking to access finance – and follows on from existing bank partnerships Funding Circle already has with RBS and Santander.

Providing more communications around bad debts

If you have any defaulted loans you may have noticed that we now apply a RAG (Red, Amber, Green) rating system, also known as a Traffic Light system, in the Loan Comments on your dashboard. The purpose of the new system is to help you assess the quality of your defaulted loans, and your expected return over a certain period of time.

This post will give you a bit more detail about this new system, and how we are applying it.

Timing

Every fortnight each member of the Collections & Recoveries team review  defaulted or late loans and (if appropriate) add in Loan Comment. We will add a comment where we have taken any steps in the recovery of the loan, or otherwise where there has been a significant development (such as a recovery or convening of a creditors’ meeting).

Where borrowers (and guarantors) are in a formal insolvency process the comments are likely be separated by 6 months or 12 months in accordance with the formal reports. We will explain timescales on these longer-term cases to keep investors updated.

Content of comments

The reason we are doing this is because you have told us you would like more information about the process of recovering bad debts. We think this new system should explain more about the progress and state of our negotiations.

Where we have agreed a payment plan, we will let you know where that payment plan will get you within 5 years from the date of the loan comment. If there is to be a full recovery within 5 years, then we will let you know how long it should take to get that result.

Whilst 90-95% of our recoveries come through the personal guarantee, we appreciate that investors are interested in why the borrower failed. Where possible, which may be when we receive a liquidator’s or administrator’s report, we will summarise the reasons for the borrower’s failure.

The RAG system relates to principal at default, but please note that we always try to recover all contractual interest (as it accrues), and if we consider it appropriate we will also try to recover any additional interest that may be payable on any outstanding principal after the end of the contractual term.

The RAG rating system

The parameters around the RAG system are as follows:

Red: This is where we expect no material recovery (i.e. less than 30p in the £ of outstanding principal at default within 5 years of the date of the comment), or where negotiations are at such a stage that we simply cannot estimate the likely outcome.

At the point of default, most loans will be Red, as we will be trying to contact the guarantors or in the midst of difficult and uncertain negotiations.  As guarantors start to get their financial affairs in order we would expect the loan to move to Amber or Green, and we will update the RAG rating accordingly.

Amber: This is where we expect a partial recovery (i.e. less than 90p in the £, but more than 30p in the £, of outstanding principal at default within 5 years of the date of the comment).  Often, Amber loans will end up Green, as a borrower or guarantor increases their monthly payments, or with the passage of time as a payment plan becomes a full recovery within 5 years.

Green: This is where we realistically expect a full recovery (i.e. 90p or more in the £ of outstanding principal at default within 5 years of the date of the comment).

Assumptions

In order to assess the estimated recovery in 5 years, we will primarily consider the terms of our agreed payment plans, and whether payments under that plan have been regular and in the amounts agreed.

If we are aware that a guarantor is remortgaging or selling a property, in our experience these loans end up as a full recovery within 2 years, and so we would give this loan a Green status.

We will take into account amounts specified in IVA proposals, and estimates provided to us by Official Receivers and Trustees in Bankruptcy. However, where we do not have any such proposals and are uncertain as to the level of recovery we will give the loan a Red status.

Legality

Please note that our estimates are non-binding and may change over time. We are not promising any recovery over any period, nor are we indemnifying you against any losses.

The information we provide will always be compliant with the Data Protection Act, and we will not give any information that we consider in any way prejudices the commercial interests of the borrower, guarantor or other creditors.

We hope that this new strategy provides you with greater information regarding late and defaulted loans, and will help you to understand the recovery process. If you have any feedback on how we could further improve the loan comments further, please let us know.

The Funding Circle team

 

Cheers all round for peer-to-peer funding revolution. February industry news

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Democratising finance: Botín charts Santander’s digital course

Following the ‘democratising finance’ series from last month, the Financial Times takes a deeper look into how technology is impacting the way we finance small businesses. This piece touches on our partnership with Santander, and how technology companies are working alongside banks to help them contribute to the growth of small companies.  Another disruptive and exciting step towards helping more small businesses access finance.

Hargreaves to enter P2P lending market

Hargreaves Lansdown, the UK’s leading fund supermarket, announced that it is to set up its own peer-to-peer lending platform. They will be looking to compete with the UK’s largest operators and get a taste for the rapid growth in the industry. Peer-to-peer lending is expected to grow even more once it becomes included within ISAs.The Peer-to-Peer Finance Association is currently recommending that the government introduce a third Lending ISA.  James Meekings, co-founder, was quoted in the Financial Times following last week’s Alt Fi conference: “The Isa is going to change the industry.”

Too young for Pensioner Bonds? 5 other shortcuts to a better deal on your savings

Julia Rampen gives some great tips on how to make the most of our savings, with a round up of ISAs and peer-to-peer lending investments. As already mentioned, lending through Funding Circle will become included within the tax-efficient ISA. Exact timings are yet to be confirmed but we expect the government to respond to the consultation within the next month. It’s a big step forward for the industry and a great way for you to feel better about lending! Check out a few more tips about how to how to profit from peer-to-peer lending in this article in DepositAccounts. If you have any questions or would like to start a conversation, please check out our forum here.

The wisdom of the crowd or herd mentality? Crowdfunding looks tempting but it pays to tread carefully

As the alternative finance industry grows and many different companies and models are springing up, the Daily Mail took a look at the options available to investors. This article encourages first timers to try members of the Peer-to-Peer Finance Association, who have a demonstrable track record and have worked hard to build trust amongst consumers. Although peer-to-peer lending lies at the safer end of the spectrum and is regulated by the FCA, investors must remember that returns can go down as well as up, because your capital is at risk. At Funding Circle we believe that full transparency builds trust, and as a registered investor you can download our entire loanbook here.

Cheers all round for peer-to-peer funding revolution

Following our recent announcement that RBS will now refer small business customers they are not able to help to Funding Circle, Anthony Hilton discusses how the industry is growing and working with the wider financial ecosystem. He calls peer-to-peer lending and crowdfunding  ‘the phenomenon of our time’ and ‘a revolution indeed’ as the industry continues to boom. Nesta quotes that funds raised via these lending platforms have risen from £267 million in 2012 to an astounding £1.42 billion last year.

U.S. Victory Park Capital invests with peer-to-peer lender

This month we are pleased to announce that we have partnered with Victory Park Capital who will lend $420 million to both US and UK small companies over the next three years via the Funding Circle marketplace. By welcoming larger investors to Funding Circle, we are able to help thousands more businesses to access finance. Victory Park will be lending to businesses via whole loans – you can read more about this here. Sachin Patel, our head of UK Capital Markets, discussed the news on CNBC and you can also read more by Peter Renton on LendAcademy.

European market for online alternative finance surges

And finally, the Financial Times reminds us of the UK’s domination over the European alternative finance market following a benchmarking report by Nesta. Andrew Hagger’s article in the Independent looks at how peer-to-peer lending is becoming more mainstream as we shape the way that finance is provided, creating an easier and quicker approach to lending and borrowing.

We’ve partnered with Virgin Trains to bring you 20% off train travel!

Virgin Trains white

Small businesses are the lifeblood of the economy, but their scale sometimes means they come up against disproportionate costs. We are therefore really excited to have partnered with Virgin Trains to bring our small business customers 20% off travel anywhere on the Virgin Train network. It’s fantastic to partner with another company who also passionately believe in helping business owners get ahead.

The good news is that investors can also take advantage of this offer! To book your advance tickets, all you need to do is enter ‘Funding Circle’ in the company name field and ‘FCinvestor’ or ‘FCborrower’ in the password field, here.

Tickets can be booked from  27 February – 29 June 2015, for travel between 27 February – 30 June 2015, whether it be for work or leisure.

For more information, please visit our partner page.

Lending to more businesses looking to buy an asset

Today, we’re pleased to announce that we are trialling a new process for asset finance loans. We have helped businesses access finance secured on a specific asset (such as a piece of machinery, equipment or commercial vehicle) since 2012, and over the last few months we have been reviewing how we can improve this experience for business owners and provide more lending opportunities for investors.

Asset finance is a competitive market which is defined by simplicity, speed and competitive rates. Businesses looking to buy an asset need more certainty over when the supplier will be paid and the interest rate that they will pay. To provide business owners with certainty of cost, asset finance loans will now be fixed rate. This will allow us to release funds for the transaction as soon as the auction ends.

As before, Funding Circle Asset Finance Limited will still hold title to the asset and in the event a business is unable to repay, we will take steps to recover the asset and sell it on behalf of investors.

A valuation of the asset will be completed by a third party specialist asset valuer, who have significant experience in valuing, recovering and selling equipment of all types. This will be provided on the financial summary page as a pdf. The recovery value of the asset is indicative and will depend on its usage and the way it’s maintained.

Whilst we will place more focus on the asset for these kinds of transactions, we will continue to carry out the same high level of due diligence when reviewing the ability of the business to afford and repay the loan. If a borrower is able to provide up to date management account information, we won’t always require bank statements for these types of deals.

We will be testing these basic processes from today, and may make further improvements as we move forward. As always, if you have any questions or feedback, then we would love to hear from you so please get in touch or join the conversation on the forum.

The Funding Circle team

The democratisation of finance. January industry news

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How to boost the returns on your cash

There was plenty of discussion last month around how to make your money work harder in the post-Christmas period. You can read more on how peer-to-peer lending compares to other investments available in the Daily Mail, Guardian and the Independent. Since launching, investors at Funding Circle have earned over £25 million in net interest after fees and bad debt. But remember that investor returns can go down as well as up, as your capital is at risk.

RBS to refer rejected small firms to peer-to-peer lenders

Last month RBS announced plans to formally refer small businesses they cannot help to companies such as Funding Circle.  We’re very pleased to be working with both RBS and Santander, as both partnerships will help to raise awareness within the small business community of other finance options now available to them, providing you with ever more lending opportunities on the marketplace. It’s a great example of how technology companies can work alongside traditional banks in a complementary way and to the benefit of the customer.

Peer-to-peer lending: The new landscape

Following the RBS news, Sachin Patel, our Head of UK Capital Markets, went on CNBC to discuss what it means for the industry. You can also read more about our partnership in the Financial Times, the Guardian and City AM.

Technology improves access for the masses

In a special series about ‘democratising finance’, the Financial Times takes a look at how technology is improving access for both borrowers and investors. Samir Desai, our CEO, said: “In the past it wasn’t really possible for individuals to lend to businesses unless they had £100,000 or more available. Now they’re on an equal footing with big institutions. That is true democratisation.”

P2P lenders rebrand and evolve

A second piece in the series explores the shift from ‘peer-to-peer lending’ to ‘marketplace lending’, and why more and more borrowers and investors are turning to it. Many traditional banks are still nursing weak balance sheets, constraining lending, yet Funding Circle’s marketplace is now the fourth largest net lender to small businesses in the UK.

Lend-to-save investment trust P2P Global Investments launches new shares to tempt investors attracted by up to 8% yield

P2P Global Investments, an investor on the Funding Circle marketplace, raised £200 million last May and is now looking to expand with the issue of new shares. The investment trust uses money raised to invest in loans on platforms in the UK, US and Europe.

Entrepreneurs aren’t lone wolves: Labour will back them for the good of all

Following a Labour Party business event where co-founder James Meekings spoke, Chuka Umunna, Shadow Business Secretary, discusses the importance of access to finance for small businesses.

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£500 million lent

What a milestone! In just four and a half years, your lending has helped more than 7,000 businesses access half a billion pounds of finance via Funding Circle.

500-million

You are now lending approximately £35 million a month to creditworthy small businesses, making Funding Circle’s marketplace the fourth largest net lender to small businesses in the UK. Since launch, this has created an estimated 21,000 jobs.

Geoff Ridgeon and David Massey run the award winning restaurant, The Exhibition Rooms, based in Crystal Palace, London. Last year they borrowed £36,000 from 763 investors to open a second restaurant, Brighton Way, based in Streatham Hill.

Geoff Ridgeon, co-owner at ‘The Exhibition Rooms’, said: “At first we tried to approach the banks, but we were consistently told that lending to restaurants wasn’t a priority this year. We were recommended Funding Circle by a friend, and after checking it out, we decided to apply. It was stress-free and straightforward, but more than anything we found that people wanted to invest in us.”

Last week, we also announced a second referral partnership with RBS (following the one we announced last year with Santander). This will help to raise awareness within the small business community of other finance options now available to them, providing you with ever more lending opportunities on the marketplace.

Chancellor introduces new tax relief for investors. December industry news

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Is alternative finance the answer to SME lending?

Ahead of the Chancellor’s Autumn Statement, co-founder James Meekings went on CNBC to discuss why traditional small business lending is still shrinking, and what other options are now available to small business owners. Online marketplaces are one such option, linking supply and demand directly. Funding Circle is now the 4th largest net lender to small businesses in the UK.

Autumn Statement 2014: P2P lenders welcome tax relief boost

The Autumn Statement itself included some great news for individual investors. The Chancellor outlined tax and regulation changes which we have been campaigning for since we launched in 2010. From April, you will be able to offset any losses – or bad debt – against your net return. You can read more about what this means here. The news was also covered in the Times and Guardian.

Funding Circle strikes deal in US

Last month we also announced 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 and will not compete with any individual investors lending on partial loans. It’s a significant step on the journey to creating a stable and sustainable global marketplace, where creditworthy businesses borrow directly from a diverse range of investors – you can read more here.

Why investors are bullish on Lending Club IPO

In a landmark moment for the industry, Lending Club, an online marketplace in the US which focuses on personal loans, became the first to publicly list on the New York Stock Exchange. Our US Managing Director went on Bloomberg to discuss the potential of the marketplace model. CEO Samir Desai also discussed the news on CNBC, and you can read more in the Times and City AM.

Banks are taking a risk by treating peer-to-peer lenders lightly

The Financial Times warns banks are at risk of treating the industry too lightly. The piece compares the disruption marketplace lending is causing, to Uber’s rapid expansion across the globe. Whereas taxi drivers have rushed out their own online apps and mounted the legal barricades to stop Uber even pulling up in their neighbourhoods, the way mainstream banks have responded to peer-to-peer lending  is much more laid back.

A year of change for your money

In an end of year roundup piece, the FT predicts that 2015 will be a big year for the industry following a successful 2014.

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Highlights from 2014

As 2014 draws to a close, we wanted to take a moment to share with you some of the highlights from this year. And what a year it’s been.

Together, you’ve now helped over 7,000 businesses access finance, in excess of $800 million across both the US and the UK. Many of these businesses are going on to do some fantastic things, and we hope you enjoy reading some of their stories.

We teamed up with our colleagues over in the US and put together this short video. You’ll meet members of the Funding Circle team, watch some of our favourite borrowers from the year, and hopefully get a sense of what you’re helping to build. From cinemas in Florida, to manufacturers in Reading, we’re showing businesses there’s a better way to access finance.

A Lending ISA

Earlier this year, the Chancellor announced that the government was committed to the inclusion of peer-to-peer lending within ISAs – a huge moment for the industry.

Previous research of ours found that 41% of investors would invest more in marketplaces like Funding Circle if it was included within ISAs, and one in ten people said they would transfer their existing stocks and shares into a ‘Lending ISA’. Additionally, TISA (Tax Incentivised Savings Association) estimates that more than £50 billion is invested in ISAs every year. If just 3% of this money was channelled through marketplaces such as Funding Circle it would create more than £1.5 billion of new lending to businesses annually, leading to approximately 75,000 new jobs.*

Since March we have been working closely with the Treasury and other players in the industry to refine exactly how this would work. Last Friday the consultation came to a close and we wanted to share our topline recommendations.

We have recommended that the government introduce a third ‘Lending ISA’. Currently you can have a cash ISA and a stocks and shares ISA, but lending to businesses is different to depositing money in a savings account (hence the higher return), and is less volatile than investing on the stock market. A third ISA will give investors more flexibility and allow for a higher level of diversification, as you will be able to choose how best to allocate your £15,000 limit across three types of investment depending on your risk appetite.

It will also mean that Funding Circle will become an ISA manager, which would be challenging if wrapped up in a stocks and shares ISA, as we would not be able to offer this type of investment. The benefit of this would be that you will be able to own all of your investments yourself, rather than go through a third party ISA manager. You will also be able to go directly through Funding Circle and invest via your existing account if you wish to.

Finally, we are recommending that investors are able to transfer their existing Funding Circle investments directly into a Funding Circle ‘Lending ISA’. We also hope that those of you who already have ISAs and would like to diversify across a ‘Lending ISA’, will be able to transfer money across from other types.

Having spoken with many of you over the last period, we hope that this is in line with what would work for you. It’s an exciting development and whilst it will take many months to implement, we will continue to update you as and when we have more information.

Funding Circle’s new Innovative Finance ISA can be found here

If you have any questions then please get in touch or join the conversation on the forum.

The Funding Circle team

 

*Independent research by government think tank Nesta last year found that businesses that receive a loan through Funding Circle employ on average 11 people, and see an average increase in employment of 27 per cent after receiving finance.

Non-bank lending growing in importance. November industry news

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The bank that Vince built finally opens its doors

Vince Cable’s vision of a new British business bank with a clean balance sheet and an ability to expand lending rapidly to small businesses, is now a reality. Brussels gave the green light for the new bank to become an independent lender with a chief executive and board managing about £4bn of state money. Of all the G8 members, Britain has so far been the only country without an institution that deals with funding for small and medium-sized companies.

Zopa lends £250m in a year as peer-to-peer industry booms

The strength of the UK’s booming peer-to-peer lending industry was underlined when our friends at Zopa revealed that investors have lent a quarter of a billion pounds in personal loans in just the last 12 months. We also saw a record October and November, with investors lending £30 million and £35 million to small businesses respectively.

Fishing for finance in new loan streams

It’s no surprise to us to hear that levels of non-bank lending in Europe, particularly among small businesses, is rising fast. But figures released this month, by law firm Allen & Overy, confirmed that it is now almost as important to European companies as bank debt.

Challengers press watchdog to end stranglehold of big banks

The Competition and Markets Authority initiated a full-blown inquiry into the lack of competition and transparency in current accounts and small business banking, prompting the Financial Times to take a look at the impact of challenger banks over the last period.

UK alternative finance market set to surge in 2015

Nesta published their third and largest piece of research on the alternative finance industry. Two years ago, their first report mostly included data about Funding Circle, and now it includes data from over 20 companies – a sign of the growth of the industry.

Funding Circle hopes to grow enough to tap securitisations

Following our CEO Samir’s speech at LendIt Europe, City AM published a piece on how we are planning to open up lending to small businesses to large investors such as pension funds and insurers in due course. This will allow us to create a sustainable marketplace with a diverse range of investors, big and small, ultimately bringing more lending opportunities to all.

Peer-to-peer lending platforms expect Isa delay

Unfortunately we also heard this month that peer-to-peer lending inclusion in ISAs may be delayed until after the general election in May. However we’re still confident that it will happen and we continue to be part of the conversations with government. We will be soon be posting an update on our consultation response on the blog.

Rebels with a cause

Co-founder James Meekings has been shortlisted for business person of the year in the Sunday Times! The winner of the annual competition will be chosen from a shortlist compiled by the paper, but they want your views so email business@sundaytimes.co.uk and the winner will be revealed in their December 28 edition.

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Chancellor introduces new bad debt relief for lending through Funding Circle

One of the main questions investors have asked us over the last four years is what more can be done to encourage the Government to introduce tax incentives for investors, specifically the introduction of peer-to-peer lending into ISAs and income tax relief on loans

As many of you will know, following our campaign the Government announced in March plans for marketplace lending to be included within an ISA wrapper; and this week’s Autumn Statement delivered another significant announcement for all individual investors.

The Chancellor confirmed plans for the introduction of a new bad debt relief for individuals lending through marketplaces like Funding Circle. This means that losses incurred by lending through Funding Circle will be offset against income tax rather than capital gains tax. This relief is expected to be effective from April 2015.

This is one of the most significant changes introduced by the Government for the industry and something we have been campaigning on for four years. It is supported by both Labour and the coalition Government and, alongside the ISA introduction, will help create a much fairer tax system for individuals engaged in marketplace lending.

Depending on your individual tax situation, by April next year we estimate individuals will be able to to earn up to 25% more as a result of these changes – and potentially significantly higher depending on your personal  investment strategy. Overall this is a win-win for Funding Circle investors and businesses and we expect it will have a hugely positive impact on the wider industry.

The Funding Circle team

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

Government to consult on new P2P ISA. October industry news

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Bank lending to small businesses falls by £400m

Small firms are still struggling to access cash from the banks, according to the latest Trends in Lending report, out last month. The Bank of England report, which consolidates all available lending data to paint a fuller picture of the lending landscape, showed that net lending to small and medium-sized enterprises through the Government’s Funding for Lending scheme was down in the second quarter of this year, contracting by £400m.

The peer-to-peer sector is rapidly coming of age

With news that bank lending to small businesses continues to fall, Anthony Hilton hails the peer-to-peer lending industry as an increasingly important part of the small business lending market. Given Market Invoice has now lent more than £250 million to small businesses who need help with invoice finance, and Funding Circle is one of the largest sources of finance to small businesses in the UK in just four years, we would tend to agree.

Government to consult on new Peer-to-Peer lending ISA

The Government announced a month long consultation looking into how peer-to-peer lending will work for ISAs. Increasingly there are calls for a third P2P ISA which sits separately to a cash ISA and a stocks and shares ISA. We’re working on our response at the moment and will post a blog soon with details of what we are proposing, as it would be helpful to get your feedback. This is Money and the Evening Standard also covered the news, and you can watch co-founder James Meekings responding to the news on CNBC here.

London’s tech firms raise record $1bn of venture capital investment

The technology scene is hotting up in London with news of three major exits in 2014 to date. Financial technology companies are playing a big role too, with our fundraising round in July for $65 million being the largest in Q3. CNBC, Wall Street Journal and the Financial Times also covered the news.

Councils give entrepreneurs £7m leg-up by investing in small firms through pioneer Funding Circle

Rushcliffe Borough Council became the tenth UK local authority to sign up to lend to small businesses within their region. The project, established to stimulate local economic growth and employment through improved access to business finance, is already responsible for more than £7 million of funding from other councils across the country, the government-backed British Business Bank and investors.

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Unleash the potential of small developers to help resolve the housing crisis

home building

Just as with small business lending, the house-building market in Britain is deeply dysfunctional. Development is being suffocated, helping to inflate house prices and stoke the red-hot rental market. In some parts of the country, the situation is particularly grim. In the East Midlands, housing starts are barely at a third of their peak levels of the mid-2000s. England needs 260,000 homes to be built annually, but just 112,000 homes were completed in 2013-14. And the biggest deficiency is right here in London.

Currently, the home-building burden is being borne by big developers, but it’s a burden they’re struggling to carry on their own. The big developers have consistently warned that they are not in a position to increase supply sufficiently to meet demand.

That is why party conference season has been adorned with promises to address the chronic shortage of residential property. Ed Miliband has pledged to build at least 200,000 new homes a year by 2020, while the Conservatives have promised 100,000 new discounted homes for young people.

These are welcome steps. But so far, all parties have failed to address one of the major issues holding back private sector house-building: a lack of finance available for small developers, the lifeblood of a healthy market. To meet demand, Britain needs to revive the fortunes of small developers, whose market share has dwindled from two-thirds of new private sector homes in 1988 to just over a quarter in 2013. And a major reason for that is a lack of finance.

High street banks are simply not in a position to meet demand. They are saddled with bad debts from the crisis, while tough capital requirements on property loans limit their lending capabilities – the FCA estimates that “slotting” encumbers banks with up to £3bn of additional equity capital requirements. And IT legacy issues make it difficult for them to lend swiftly to developers.

That is why more developers are using online marketplaces to access finance. These are often better-placed to meet small developers’ needs, and have systemic advantages over banks. For the big banks, lending to small developers often isn’t viable, but for online marketplaces it is a specialty and they excel at it. They’re not hamstrung by legacy issues, meaning they can deliver the same level of credit assessment, but in a quicker and more efficient way. At Funding Circle, we have been inundated with small developers coming to us in search of finance.

It is indicative of a broader trend that is likely to accelerate in the next decade, where more small developers and businesses access finance through online marketplaces. These players are now firmly established in the financial mainstream, and can help to unleash the potential of small developers to play their part in solving the house building crisis.

Of course, better access to finance is only part of the solution. It has to be complemented, for example, by changes to the planning system. Developers of all sizes want and need the system to be simpler, cheaper and more efficient.

But unless this country does more to help small developers, the house-building crisis will persist.

Samir Desai, CEO and co-founder

This article first appeared on City AM.

Lenders disrupt UK finance. September industry news

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Man at the Bank of Vince would like to say ‘yes’ with his £4bn pot

A year after the British Business Bank’s formal launch, the CEO gave an interview highlighting the success of the programme so far. Backed by a five-year government funding commitment of £4bn, it has already delivered £876m of new lending and investment to small and medium-sized businesses, including £40m through Funding Circle earlier this year.

UK peer-to-peer lending reaches £2bn

The UK’s peer-to-peer finance sector continues to expand quickly, with data showing that cumulative lending has doubled since last December. Major platforms have now lent a combined total of more than £2bn, having reached the £1bn milestone nine months ago, according to figures published by AltFi Data.

Eye-popping street art … and how it broke free of the banks

Street Advertising Services, a Funding Circle borrower was featured on CNN this month, following the £40,000 loan they took in August. The brilliantly creative marketing company is best known for their “World’s Biggest Shave” campaign, a giant Roger Federer face spray painted on a hill in Wimbledon for Gillette. The business owner, Kristian Jeffrey, said banks didn’t seem to grasp his business plan, but he was able to get his loan via Funding Circle within days thanks to your lending.

Upstarts target banks’ lunch

A special report in the Financial Times looked at how technology companies are challenging traditional banks, by nibbling at the fringes of banks’ business model, which are often inefficient and can be undercut. It also predicts that banks may be facing ‘death by a thousand cuts’, with each fintech company taking a small slice of a bank’s business, adding up to a significant proportion of its overall revenues.

Unleash the potential of small developers to help resolve the housing crisis

In a bylined article, our CEO Samir Desai, outlines the issues facing small property developers looking to access finance. Since we extended the types of loans we offer to small businesses who develop or invest in property in April, over £15m has been lent to small developers across the country. England needs 260,000 homes to be built annually, but just 112,000 homes were completed in 2013-14. Your lending is helping to unleash the potential of small developers to play their part in solving the house building crisis.

Lenders Disrupt U.K. Finance Funding Borrowers Banks Snub

And finally, Funding Circle was the cover story for Bloomberg Markets magazine. The in-depth describes how ‘the overthrow of British banking is being plotted in between ping pong games in a 10-story office building near London’s Fleet Street’, and details where the idea came from and how we’ve grown to be Britain’s no. 1 online matchmaker for small business loans.

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A 21st century alternative to banks. August industry news

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Bank lending to businesses continues to fall, but P2P is flying

According to the Bank of England, net lending to large companies by Government’s Funding for Lending scheme fell by £3.5 billion in the second quarter of this year, widening from a £2.7 billion drop in the first quarter. Lending to small businesses fell by £400 million. By contrast, one scheme that has proven to be successful so far is the British Business Bank, as highlighted by Funding Circle co-founder, James Meekings in the Guardian, Reuters and The Times.

Man at the Bank of Vince would like to say ‘yes’ with his £4bn pot

Continuing the theme of Government support for small businesses, Keith Morgan, CEO of the British Business Bank, was interviewed by the Sunday Telegraph. As part of the piece, Mr Morgan talked about the work the British Business Bank is doing to support new, innovative providers and how they are lending money directly to businesses through marketplaces, like Funding Circle, Zopa and RateSetter. 30,000 British businesses have already benefited as part of the wider programme of helping businesses access finance, including 2,300 businesses as a direct result of its investment through Funding Circle.

A 21st Century alternative to banks

Funding Circle CEO, Samir Desai was a guest on BBC Radio 4’s Today programme to talk about the trends in alternative lending. In a CityAM feature about London’s growing fintech sector, Funding Circle was also named out as a UK success story that has recently spearheaded into the US market.

Lending Club files for IPO

As August drew to a close, Lending Club, the largest consumer peer-to-peer lending marketplace in the world, announced plans to file for IPO. The business is expected to raise approximately $500 million. One US commentator described it as “Wall Street royalty meets Internet royalty“. As one of the most anticipated IPOs of the year, it will be exciting to see how things progress over the next few months.

Funding Circle Buys LeapPay

Also during August, we announced that we had purchased LeapPay – a small US technology company. This acquisition will to help provide even faster decisions for American businesses looking to access finance.

Next generation finance: How London can cement its leadership in fintech

Writing in City Am, Rhydian Lewis, CEO of RateSetter, championed London as the home of the fintech industry – combining the best of the financial world of New York and the technology of Silicon Valley. Mr. Lewis cautioned against the UK resting on its laurels and called for more to be done to strengthen our position in this important growth industry. Also in City Am, Alex Letts, chief executive of digital current account provider Ffrees, discussed how fintech is forcing UK banks to redefine their strategies. He emphasised the need for traditional providers to partner with new, innovative companies like Funding Circle and Transfer Wise, or avoid being left behind.

Funding Circle celebrates its 4th birthday!

Today, we are celebrating our fourth birthday, and what an incredible journey the last few years have been. We want to say thank you to all of the investors and borrowers who have made the last four years possible.

To date, you have lent over £330 million to over 5,500 small businesses across the country, creating an estimated 16,500 jobs. To celebrate, we’re publishing an infographic which tracks the rise of peer-to-peer business lending right up to this year, when the industry became formally regulated.

If you’re a small business owner looking for finance, then why not put an application in now? Apply here.

Infographic FINAL resized for blog

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