UK peer-to-peer lender Funding Circle, which enables individual investors to lend to small businesses, plans to launch in the US through a merger with a San Francisco-based counterpart.
Funding Circle has made about US$267m in loans since it was set up in 2010 and has attracted around 20,000 active investors, who can contribute as little as £20. The lender’s website lists businesses seeking loans and potential investors can make an offer.
Although the interest rate may not necessarily be more attractive than that for a conventional bank loan, Funding Circle says that the process is much quicker while supporters of peer-to-peer lending believe that credit can be distributed more efficiently than through a bank.
To assist its US venture, Funding Circle raised US$37m from investors led by the venture capital firm Accel Partners and used some of the proceeds to acquire Endurance Lending Network, a smaller American small-business lending network set up last year.
“Small businesses are very underserved by the banking system,” said Samir Desai, chief executive (CEO) and a founder of Funding Circle. “We visited the US and found the problem was as acute as it was in the UK. We’re using data much more actively than banks have done.”
Earlier this year the UK government agreed to lend £20m (US$32m) through Funding Circle as part of its efforts to support economic recovery by boosting funding for small businesses. Desai estimates that nearly £15m of that funding has been distributed to businesses.
Funding Circle’s investors have been attracted by the relatively high interest rate, averaging 9%, they can earn on a typical loan term of 45 months. Desai says that investors are on average making an annual return of 6% after fees and losses, which are running at about 2% of loans a year.
Funding Circle itself charges fees matching borrowers and lenders, with a 1% fee for investors and between 2% and 4% for borrowers. Desai expects the company to be making annual revenues of US$10m in the near future, although in the short-term losses are likely as Funding Circle hires new employees and invests in technology.
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