Funding Circle Cuts the Cost of Business Borrowing
Small Business News – 20th August 2010
Funding Circle claims to be able to cut the cost of a business loan by up to 25%. It does this by bypassing banks and inviting small private investors – including other businesses – to lend to small firms.
The scheme, set up with business credit reference company Experian, will offer loans of between £5,000 and £50,000, to be repaid monthly over one or three years.
Each loan will consist of multiple loans from a number of lenders, who will compete to lend to the business. Lenders can charge different rates on the same loan, so the borrower ends up repaying at an average interest rate.
Interest rates on commercial loans typically average 11-12%, but can be much higher. Funding Circle estimates that businesses borrowing though its service can expect to pay an annual rate of 6 to 9%. The company will take 2% of the amount borrowed as a matchmaking fee.
“Our main aim is to give businesses a fairer deal and at the same time give lenders a better return,”
said Funding Circle’s co-founder, James Meekings.
“We’re reconnecting the community, with savers on one side and borrowers on the other, sidestepping the banks and producing a more efficient model.”
To take part, businesses must provide a credit history, be based in the UK and have been trading for a minimum of two years. The company will use in–house underwriters to ensure all borrowers involved in the service are creditworthy.
The scheme has already received the backing of the Forum of Private Business (FPB).
“It shows how the traditional providers are in some ways being sidestepped because they have shown this reluctance to lend,”
said FPB spokesman Chris Gorman.
“Businesses are finding other ways of securing finance and you could argue that banks are going to miss out as a result.”
For more information, or to apply to make or borrow a loan, visit the Funding Circle website.