FIRST EVER ONLINE MARKETPLACE FOR CONSUMER-TO-BUSINESS LENDING BRINGS FRESH SOURCE OF FINANCE TO SMA

Online marketplace will enable savers to sidestep banks and lend directly to small businesses; Savings of 25 per cent on the total cost of funding; Backers include Jon Moulton of Better Capital, Andy Homer, CEO of Towergate and 2009 BBC Apprentice winner, Yasmina Siadatan

[UKPRwire, Sun Aug 15 2010] Funding Circle (www.fundingcircle.com), the first ever online marketplace to enable savers and investors to sidestep banks and lend directly to small businesses, has gone live today (Friday 13th August 2010). Funding Circle differs from other social lending platforms in that it facilitates loans to businesses, rather than consumers. It will provide low cost finance for creditworthy, small UK firms frustrated by the loan terms offered by the high street banks.

The monthly repayment loans on offer will be for either one or three years and for between £5,000 and £50,000. Each loan will be comprised of small amounts of borrowing from many different people who compete to lend to the business in question, enabling it to borrow at a better rate. With no bank in the middle, both lenders and borrowers achieve a better deal.

Funding Circle’s Chairman, Laurie Edmans CBE, said:
“We expect businesses to be able to reduce their total cost of finance via Funding Circle by approximately 25 per cent, and borrow in a quick and easy process without banks’ high charges and tie-ins. Research by the Forum of Private Business, with whom we are working closely, shows that small businesses are currently being charged an average of 11 to 12 per cent interest on unsecured loans by banks. Many are even paying as much as 18%. These interest rates, combined with additional high arrangement fees and burdensome application processes and redemption penalties, are discouraging businesses from borrowing money. Literally thousands of new projects are going on hold as a result. For many businesses, the opportunity to borrow via Funding Circle will make shelved projects viable again - good news for small firms and the wider economy alike.”

Benefits for savers and investors
For savers and investors, the benefits of lending money directly via Funding Circle, rather than via the banks, are threefold. First, they receive a much higher rate of interest than if they put their money in savings accounts or other investment products. Second, they have the opportunity to provide direct help to the UK’s small business community, so often called the “engine room of the economy”. Third, lenders can easily access their money at any time, simply by selling their parts of loans to other lenders.

Yasmina Siadatan, winner of BBC’s “The Apprentice, and one of Funding Circles ‘founder lenders’, commented:
“As a saver and small business owner, I am very excited about Funding Circle. Lenders will at one stroke not only be getting a much better rate of interest with easy access to their money but will also be helping businesses to flourish that, despite being entirely creditworthy, might otherwise struggle to secure cost-effective funding. Meanwhile, for small businesses like my restaurant, Funding Circle provides a much needed new alternative to increasingly onerous bank finance.”

How the loan process works
Interested lenders go to the Funding Circle website and offer an amount and interest rate to borrowers. The lowest interest rate offers become part of the loan through an online auction similar to eBay ensuring the lowest cost of finance possible for the borrower. The borrower can then decide whether or not to accept the aggregate offer received.

Samir Desai, one of three co-founders of Funding Circle commented:
“The active competition between lenders in the Funding Circle auction process stands in stark contrast to the overwhelming market dominance of the big four banks in the small business lending market at present. Today, fundamentally strong businesses are being charged disproportionately high rates for borrowing money; meanwhile there are unprecedented, low returns on savings accounts and other investment products. By providing a marketplace for market forces to operate efficiently, Funding Circle aims to provide a better deal for small businesses and savers alike.”

People can lend quickly and easily to many different businesses using an autobid tool, which lends their money according to their chosen criteria or, alternatively, they can hand-pick the individual businesses to whom they wish to lend. Lenders divide their money between lots of businesses to spread their risk, and can lend £20-£2,000 per business. There is no limit on the total amount that can be lent.

Perfect vehicle for “Big Society” community action
Lenders can also club together in ‘Circles’ to lend to businesses with characteristics they all value. For example, a “North-West business” circle might enable lenders to work together to lend to businesses in the North West. Or, an environmental circle could work together to lend to environmentally friendly businesses.

James Meekings, also a co-founder of Funding Circle said:
“Circles will make it easier for people to come together to use their savings and investments proactively to help shape the community and economy in which they live. We believe they offer enormous potential to create social good, based on their resonance with a strong trend toward greater consumer activism and desire for empowerment. They provide perfect vehicles to fund community action, whether as part of the Government's 'Big Society' drive or more generally."

Political and trade association support
The launch of Funding Circle has been welcomed by those supporting the small business community, including Mark Prisk, the Small Business Minister. Small businesses are critical to the health of the UK economy, accounting for 99 per cent of all UK enterprises and providing employment to just under 50 per cent of the private sector workforce . But despite being called ‘the engine room of the economy’, small businesses have very few funding options available to them. The big four high street banks account for over 90 per cent of all lending to small businesses.

Phil Orford, Chief Executive of the Forum for Private Business, commented:
“If the major banks decline to lend at an affordable rate, the only real option left open to owners of small firms to date has been to use their own private resources or call those of friends and family. At the current time, lending rates to small businesses are unpalatably high and the fees and charges they have to pay to the banks on top are simply disproportionate to the service rendered. Banks just don’t seem to be providing a fair deal. The lending figures quoted by some banks simply do not accurately reflect the problem small businesses face. Now is the perfect time for innovative funding solutions to enter the market and challenge the hegemony of the banks. Funding Circle provides a very welcome alternative source of finance for small businesses.”

Simple and transparent fees
For a limited period only, Funding Circle is waiving all borrower fees. Once this introductory offer has ended, borrowers will be charged a small, transparent fee: they will pay a £50 application fee to cover the costs of credit assessment and, once funded, will be charged a one-off fee of 2 per cent of the amount borrowed with the application fee refunded.

Laurie Edmans CBE said:
“The simplicity of Funding Circle’s one-off charge to successful borrowers of 2 per cent of the sum borrowed is very different to the multiple layers of different fees and charges the banks impose.”

Phil Orford added:
“It’s really refreshing to see such a transparent charging structure compared with the complexity of the banks’ security fees, arrangement fees, management fees, repayment penalties and more. When taking out bank loans, businesses just aren’t given a clear view of what the loan is really costing – 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 lending, helping each other to access the growth finance that is simply not available at present.”

In 2010 there will be no fees at all for lenders and as an introductory offer, Funding Circle is giving lenders 2 per cent cashback on the amount they lend.

Lenders get high return with low risk
Funding Circle says despite enjoying a far better rate of return than that available on bank deposits, lenders’ money is very safe. Experienced Funding Circle underwriters comprehensively assess each application using the same information that banks use and only allow established and creditworthy businesses into the marketplace. Approved borrowers are then split into risk bands to give lenders a clear indication of the level of risk entailed in lending to them. Bad debt rates are expected to be low, as on other social lending platforms, estimated to average 0.6 per cent for businesses in the lowest risk band.

Andrew Mullinger, another co-founder of Funding Circle, said:
“As with any investment, of course there is an element of risk, and loans made via Funding Circle should be one component in a wider investment portfolio. However, lenders spread their lending across lots of businesses, so even if one or two of the companies to which they have lent default, their expected returns should not be altered dramatically, particularly if the default comes after a number of repayments have already been made.”

High-profile backers
Funding Circle is backed by a group of private investors, including current and former heads of private equity firms, insurers, banks, IT companies and leading professional services providers. High profile backers include Andy Homer, Chief Executive of Towergate Partnership, and Jon Moulton, the founder of private equity firm, Better Capital, and former managing partner of Alchemy Partners.

Jon Moulton commented:
“There is no doubting that Funding Circles offers a new, high-interest asset class with an excellent level of risk-adjusted return. This is particularly attractive for people disappointed with the low rate of return on bank deposits. I expect this asset class to grow substantially and become part of a good investor’s portfolio over the next few years. “
ENDS

For more information please refer to Q&As at www.fundingcircle.com, log-in details are provided below:
User name: foundermember
Password: better-rates-for-all-060810

To arrange an interview or for a photograph please contact:
Giles Abbott
Marketforce Business Media Ltd
direct line. +44 (0) 20 7760 8631
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email: gabbott@marketforce.eu.com

Notes to editors
Laurie Edmans CBE, Chairman of Funding Circle, has had a career spanning more than 40 years in financial services, including many senior positions. His current posts include deputy chairman of MGM Assurance and Trustee Member of ‘NEST’ the proposed national pensions savings scheme. He was a founder director of the Pensions Regulator and acted as a special adviser to Otto Thoresen’s review, for HM Treasury, of generic financial advice. He was awarded the CBE for services to pensions reform in 2006.

Laurie Edmans is joined on the Funding Circle board by Non-Executive Directors Andrew Learoyd and Alan Morgan. Andrew Learoyd spent 23 years working in investment banking and retired as COO of the Equities Division in Europe of Goldman Sachs in 2006. Andrew is currently Chairman of Healthy Kids (trading as Little Dish in healthy food products for children) and Small World Group (a leading money transfer business in Europe). Alan Morgan is a co-founder and Chairman of MMC Ventures Ltd. He was formerly at McKinsey & Co, where he was a Senior Partner and leader of the firm's Financial Institutions Group in Europe and the Middle East. In 2006 Alan co-founded Olivant, a private equity investor in financial services businesses.

Funding Circle has been co-founded by Samir Desai (formerly of Olivant & the Boston Consulting Group), James Meekings (formerly of OC&C Strategy Consultants) and Andrew Mullinger (formerly of Citigroup, Ernst & Young and Nomura).

Funding Circle is provided to members of the Forum of Private Business as part of the organisation's Finance Director business support solution, which is a range of services offering complete reassurance across all financial business matters. The Forum is a not-for-profit organisation, providing comprehensive business support, protection and reassurance to small to medium-sized businesses across the UK. It provides practical, tailored solutions that promote business success through expert advice and guidance, and by being the co-ordinated voice of its small business members in government.