One of the major challenges that small businesses have when attempting to get small business finance is comparing business loan rates. Unlike in personal lending, where individuals are always told an APR (or Annual Percentage Rate) which summaries in one number for the total cost of business finance, small business finance providers have no such restrictions. Small businesses are often told a wide range of different business loan rates from flat rates to monthly small business loan interest rates, making it very hard to compare what the total cost of the business loan is. In addition to this, businesses will encounter a wide range of hidden extra charges such as business finance arrangement fees, monitoring fees, security fees (which effectively turn the loans into secured business loans on personal property), review fees and early repayment fees.
Funding Circle, an innovative new online marketplace where people lend directly to small businesses is different. When you accept any business loans at Funding Circle you will always be shown an APR and also a total cost of finance in pounds so that you know clearly,and concisely what your total cost of finance for business is. Funding Circle also have a very simple and transparent fee structure – where they only charge a one-off completion fee of 2% of the total amount being borrowed. That is it, and what ‘s more you can repay early at no extra cost!
Phil Orford, CEO of the Forum for Private Business has welcomed the entry of Funding Circle into the small business lending market:
“It’s really refreshing to see such a transparent business loan rates charging structure compared with the complexity of the banks’ security fees, arrangement fees, management fees, repayment penalties and more. When taking out bank business loans, businesses just aren’t given a clear view of what the small business loan rates really are – something we would very much like to see change. We hope the Forum’s relationship with Funding Circle will allow members to become part of a community providing genuinely affordable business finance, helping each other to access the growth business finance that is simply not available at present.”
Because at Funding Circle rather than borrowing from a bank you are getting business finance directly from real people, it is estimated that businesses can save 25%+ on the total cost of business finance.
Funding Circle could save you 25%+ on your business loan rates
Example: £15,000 three year loan
|Typical Bank*||Funding Circle**|
|*Source: Forum of Private Business economy watch report, unsecured loans
**Based on average interest rate for risk band A+
|Equivalent flat rate||6.2%||3.9%|
|Total cost of finance||£2,778||£1,748|
You can get an idea of the possible total small business loan rates from borrowing at Funding Circle using our calculator below, and can also see some typical business loan interest rates in the table below. The table shows the minimum target small business loan interest rates and implied cost of business finance by risk band. So don’t hesitate – join Funding Circle today and you could dramatically reduce your small business loan rate!
The net return is a percentage, calculated to show the return investors* have earned through Funding Circle after fees and bad debt, but before tax, over an annualised period.
To calculate it we take the following:
We take the sum of the cashflows for every day the investor has been lending (ie, from day 1 right through to the current day).
This will reflect the outstanding amount lent to businesses, less any bad debts you have incurred during the period
This is the amount of interest you have earned up until the current day but has not yet been paid to you
The above inputs are taken over a given time period so we can calculate the return for each investor, whereby:
We create an annualised return figure ( r ) by calculating this over a 365 day period.
We then use this formula to calculate the net return:
This net return expression is just one way to show the returns investors have made through Funding Circle. We think it is the most useful and accurate way to measure investment performance because it takes into account both our fees and any bad debts but as with many calculations it has some limitations, including:
There are other methods for evaluating historical or potential investment return that you could choose to use instead and you may want to consider these methods as well.
This estimated net return shows you the expected rate after fees and bad debt, but before tax. This calculation takes your bid rate and deducts the 1% annual investor fee and estimated bad debts for this risk band (based on a fully diversified portfolio lending to all businesses within that risk band).
Annualised, estimated bad debts by risk band are:
These estimate are provided a guide only. Actual bad debts vary for each investor. You may incur more or less bad debts than estimated and in lending to businesses, there is the risk that the value of your investment could go down as well as up. Net returns are shown before tax, to read more about tax treatment click here.