Digging into the data: How your lending helps the UK economy to grow

At Funding Circle, we’re proud of what you have achieved by lending directly to small businesses. Since 2010, more than 75,000 investors have earned an average return of 6.4% per year after fees and bad debt. In addition to earning attractive returns, you’ve also had a significant role in supporting the growth of the UK economy.

Your contribution has been highlighted by research published today by Oxford Economics, a leading economic consultancy firm. Their report, which can be seen in full here, reveals how small businesses are using the funds you lend them to:

• Create and sustain tens of thousands of British jobs
• Add billions of pounds to the UK economy
• Make a significant contribution to UK tax receipts

In this blog, we will investigate how businesses use their loans and how this benefits communities across the UK.

Your lending is an increasingly vital source of funding for small businesses

Small business isn’t small. It forms the backbone of the UK economy, accounting for approximately half of the UK’s GDP¹ and 60% of private sector employment.² Between 2011 and 2017 the number of small and medium enterprises (SMEs) in the UK grew by 28%.³

Despite the demand for small business finance increasing, banks have continued to focus on funding larger businesses. The proportion of outstanding bank loans held by SMEs fell from 38% to 35.6% during this same period.⁴ Your lending is helping to bridge this gap, with over £3.4 billion lent to businesses through Funding Circle since 2010.

2017 net lending figures, Funding Circle and UK banks

Source: Bank of England, Funding Circle

If small businesses across the UK are to thrive, it’s important that the total amount of credit available to them grows. The above chart shows the net lending—the difference between new lending and repayments received on existing loans—of both Funding Circle and the 30 largest UK-resident banks combined in 2017.

Net lending is used by the Bank of England to discover the new amount of lending to small businesses throughout the economy. When looking at new sources of finance for small businesses, investors like you are providing nearly as many new funding opportunities as the entire UK banking system put together. Investors lending through Funding Circle created £598 million in net lending, compared to £677 million for all UK-resident banks.

When small businesses win, we all win

To help determine the full impact of your lending, in February 2018 Oxford Economics surveyed more than 500 UK small businesses owners who had previously taken out a loan through Funding Circle. They found that small businesses use the funds you lend them in three key ways:

You can be proud that you not only help the businesses you’re lending to, but your lending also has positive knock-on effects throughout the economy.

You lend to businesses based all over the UK

These benefits are being felt by businesses all over the UK. The chart below shows where businesses who accessed finance through Funding Circle in 2017 are located:

Loans made to UK businesses in 2017, by local authority district

As you can see, in one year alone your lending has benefited towns and cities from every corner of the UK.

Your impact on the UK economy

Business owners were asked about topics such as their revenue, job creation, and tax payments. Oxford Economics were then able to determine the overall impact investors’ lending is having on the UK economy.

For example, the chart below shows the direct, indirect and induced economic impact of the outstanding funds lent by investors in 2017:

The economic impact of outstanding loans in 2017

Source: Oxford Economics

From this you can see three key areas of the UK economy where your lending is having a significant impact:

• Your lending creates and sustains jobs – In 2017, investors’ lending supported 45,000 jobs across the UK, either by creating new jobs, or preventing existing ones from being lost.
• Your lending boosts the overall economy – In 2017, investors’ lending supported a gross value added⁵ contribution to the UK economy of £2.4 billion.
• Your lending grows the public purse – the taxes paid by small businesses help build schools and hospitals all over the country. In 2017, investors’ lending supported the generation of more than £700 million in tax revenues.⁶

Make a return and a difference

At Funding Circle, our aim is to allow you to earn attractive, stable returns by lending directly to businesses. Although the return you earn is important, it’s rewarding to take a step back and appreciate the positive impact your lending is having. By continuing to provide small businesses with access to the finance they need to grow, you are playing a vital role in the growth of the UK economy.

By lending to businesses, your capital is at risk.

Enjoy lending,

The Funding Circle team

¹  Source: http://researchbriefings.files.parliament.uk/documents/SN06078/SN06078.pdf

²  Source: http://www.fsb.org.uk/media-centre/small-business-statistics

³  Source: ONS, UK business: activity,size and location — 2017, 1 November 2017.

⁴  Source: Bank of England

⁵  This gross value added measure of production, or GVA, is similar to the well-known gross domestic product measure (GDP). The only difference is that GVA is valued at the ‘basic’ price received by the producer, excluding taxes on sales such as VAT, rather than at the ‘market’ price paid by the purchaser, including those taxes.

⁶ The taxes included are corporations tax, employers’ national insurance and business rates paid by the firm, income tax and national insurance paid by its employees, taxes on the firms’ purchases from other firms, and VAT and duties targeting final consumers of the firms’ products.