Herefordshire Council’s original purpose for lending was to inject just over £15,000 into the local community at a time when Funding Circle wasn’t as well known.
The partnership with Funding Circle was approved in November 2014, where the council has since promoted it through press, PR and events.
Now, the council has stated that its intervention on the Funding Circle platform had served its purpose and that the lender had sufficient liquidity to guarantee that all business loans placed on the market would be funded.
“Consequently, the liquidity that the council provides serves no purpose, as Herefordshire businesses eligible for a Funding Circle loan would be funded by private investors,” Herefordshire Council stated.
The council believed that if it sold its loan parts, it would have no impact on the businesses and would reduce potential risk to council funds.
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Alternative options were considered by the council; the first of which was to retain its lending capacity on Funding Circle and its portfolio of Herefordshire businesses loan parts.
However, this was ruled out due to difficulties that Funding Circle has in bidding on loans in specific geographical areas, which would make it be hard for the council to effectively lend to Herefordshire businesses, meaning the amount of future lending would be very limited.
The second option was to change its lending profile on Funding Circle from an economic development remit to a treasury function, which would involve lending across the UK to obtain a return on reserves.
However, Herefordshire Council is prohibited to borrow to invest in financial schemes purely to generate a return and this would be the effect of using the platform as a treasury function.
Commenting on the decision, Funding Circle said: "Funding Circle investors have supported more than 40 businesses in Herefordshire with £2m in funding, which has left the council with the confidence that their lending has served its purpose and they can rely on our diverse retail and institutional investor base to provide local businesses with the capital they need to grow and expand.”
The platform also pointed out that with more than 56,000 individuals lending through its platform alongside the UK government, it did not expect Herefordshire businesses or those located in other parts of the UK to struggle to access funding through its platform.