Rather than lending its own money, Funding Circle connects small and medium-sized businesses with investors. Also known as peer to peer lending (P2P), it is an alternative method of financing your business that is growing popular with many UK businesses.
Quick Look — Pros & Cons
Let’s start by considering Funding Circle’s good and bad points.
| Pros | Cons |
|---|---|
| ✔️ It’s quick and easy to complete a funding application. | ❌️ Funding is not available to start-up businesses. |
| ✔️ The interest rates are relatively low. | ❌️ There's a maximum five-year repayment period. |
| ✔️ Funding Circle is a member of the Peer-to-Peer Finance Association, a self-regulatory body which ensures high standards of conduct and consumer protection. | ❌️ The maximum loan amount is £1 million. |
| ❌️ The loans are unsecured, but personal guarantees from the business owners or directors may be required. |
What is Funding Circle?
Funding Circle is a peer to peer platform that connects businesses with investors. These investors range from private individuals to government departments — including the UK government’s British Business Bank which has committed to invest £40 million via Funding Circle. There are currently around 90,000 investors and £7 billion has been lent to businesses around the world so far.
Funding Circle is a peer to peer platform that connects businesses with investors. These investors range from private individuals to government departments.
Funding Circle makes a big play about the good things that it does for businesses and the economy. It claims that it has helped nearly 70,000 businesses globally since it was formed in 2010 and that the loans it provided in 2018 resulted in the creation of around 115,000 jobs. It says that for every £1 that it lends to businesses, the benefit to the economy is £2.
The company has expanded rapidly since it started trading in 2010. Funding Circle now operates in a number of countries around the world, including the UK.
How does Funding Circle work?
There is a short, 30-second online test to check whether your business is eligible to apply for funding. This does not affect the credit score of your business but neither does it guarantee that your funding application will be accepted.
Assuming your business is eligible to apply for funding, the next step is for you to complete a more detailed application. This part of the process should take you around ten minutes. It enables Funding Circle to assess your credit risk and match your business to investors. You should know whether your application has been accepted within 24 hours.
Although the funding is provided by investors rather than Funding Circle, Funding Circle manages the loan, collecting the monthly repayments on behalf of the investors.
The interest rate depends on the length of the loan that you are requesting and Funding Circle's assessment of your credit risk. If you decide to accept any offer that’s made, you should receive the funding in a matter of days.
Although the funding is provided by investors rather than Funding Circle, Funding Circle manages the loan, collecting the monthly repayments on behalf of the investors. If you default on the loan, Funding Circle will manage the recovery process.
The loans that Funding Circle arranges are unsecured, although in certain circumstances personal guarantees from the business owners or directors will be required. That means that if your business is unable to repay the money that it borrows, you could be personally responsible to repay the loan.
How much can my business borrow?
The minimum loan is £10,000, although the average loan size is currently around £75,000. The maximum amount that your business can borrow via Funding Circle is £1,000,000, although this will depend on Funding Circle's assessment of your credit risk.
What is the repayment period?
Funding Circle loans last between six months and five years and they are repaid on a monthly basis. However, there is no penalty if you decide to repay the loan early. Loans with a repayment period in excess of five years are not offered.
Who is Funding Circle for?
Funding Circle is aiming its service at small and medium-sized businesses that are looking for funding for a range of reasons, including businesses that want to:
- refurbish their premises
- buy new equipment
- cover one-off costs
- employ more staff
Funding Circle will only consider applications from existing businesses that are seeking funds to enable them to grow their businesses. Applications from new, start-up businesses will not be considered.
What are the drawbacks of using Funding Circle?
Although there are no penalties if you repay your loan early, Funding Circle should not be considered a short-term source of funding. The maximum five-year loan period also limits what Funding Circle loans can be used to fund.
It may also be more cost-effective to use alternative methods to fund your business expansion. If you are buying new equipment, for instance, a loan secured on that equipment may be cheaper than an unsecured loan.
How safe is Funding Circle?
Funding Circle has been operating since 2010 and is a stable, established platform that has had a good track record over the past decade. As well as the individual investors lending money via the platform, it also has a number of large institutional investors.
Funding Circle is authorised and regulated by the Financial Conduct Authority.
In addition to the financial security behind the platform, it is a member of the Peer-to-Peer Finance Association. This is a self-regulatory body which aims to ensure high standards of conduct and consumer protection. Funding Circle is authorised and regulated by the Financial Conduct Authority.
Our Funding Circle verdict
There's no doubt that Funding Circle's business model innovative when compared to traditional business finance lenders. Does that mean that it's the best source of funding for your business? Not necessarily.
Unless your business is already established, Funding Circle won't be an option for you, and the five-year maximum loan period means it won't be an option for you if you're looking for long-term funding, either.
The large pool of investors looking to invest in businesses means that Funding Circle is able to offer reasonably competitive interest rates, though, and the application process is quick and straightforward.
