Lending site eyes Yorkshire as target for growth

Funding Circle, which was launched three months ago, lends money to small, creditworthy UK firms that are frustrated by the loan terms offered by banks. The group's investors receive higher returns than they would get through savings accounts or other investment products.

Co-founder James Meekings said Funding Circle has been overwhelmed by the positive response from Yorkshire-based companies since it launched and it plans to target companies in the region over the next few months.

"Small businesses are the backbone of the UK economy, but are all too often dismissed by their banks," he said.

"Funding Circle provides a much needed alternative source of finance for companies tired of high interest rates, opaque decision making and poor service. We are actively seeking more companies in Yorkshire to join the site to reap the benefits."

One of the first companies to secure a loan using Funding Circle was Scarborough-based Trenhams Accident Repair Centre, which took on a loan of 30,000 at a rate of 7.7 per cent. This compares to the 11-12 per cent typically offered to businesses by banks.

Owner of Trenhams Mick Trenham said: "I have had bank loans in the past, but Funding Circle was cheaper, quicker and easier to do. Funding Circle is all round a better option than the bank."

To date, small investors have lent over 1m to businesses in the first three months of operation.

The group said the success of the site highlighted both consumers' desire to earn higher interest on their money and pent up demand for finance from small businesses.

The typical investor lends 2,000 through the site, earning average annual interest of 8.2 per cent on their money.

If needed, investors can also get their money back before the end of the loan's term by selling on parts of their loan to other lenders.

Each person provides only a fraction of the overall loan that a business requires, so if a company does renege on its loan, the loss is negligible. So far all firms have fully repaid their debts on time

The credit worthiness of each firm is assessed by underwriters at Funding Circle and the strict criteria means that businesses have to have a two-year minimum trading history and prove they are credit worthy.

Companies are split into different risk bands to give lenders a clear indication of the level of risk they pose. The least risky companies are classed as A+ and offer an average return of seven per cent. The mid A band offers a return of eight per cent and the highest risk B band gives a return of nine per cent.

Although all companies have repaid their debts so far, Mr Meekings said the expected loss rate for band A+ is 0.6 per cent, for A band it is 1.5 per cent and for B band it is 2.3 per cent.

Investors set the level of interest they want to charge, with companies accepting the lowest offers.

Mr Meekings described the response to Funding Circle as "phenomenal".

"For consumers to invest over 1m in businesses via the site in just three months highlights the public's appetite to support our small business community whilst also earning themselves a fantastic return."

He added that the group is considering setting up a Yorkshire lending group, depending on how strong the demand is.

"There is a good feeling in Yorkshire," he said. "People want to support local businesses. Yorkshire people like Yorkshire people. If there is the demand we can launch a separate lending group."

Typical loans are between 5,000 and 50,000 although this will increase to 100,000 over the coming year.

Funding Circle's backers include 2009 BBC Apprentice winner Yasmina Siadatan, Jon Moulton of Better Capital and Andy Homer, chief executive of Towergate.

Ms Siadatan said: "Lenders will not only get 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. For small businesses like my restaurant, Funding Circle provides a much needed new alternative to increasingly onerous bank finance."

Anyone interested in raising funds or becoming an investor should visit www.fundingcircle.com.