SMEs' funding future depends on peer to peer lending

SMEs' funding future depends on peer to peer lending



The popularity of peer to peer lending is growing amongst intermediaries hoping to raise funds for commercial loans. Laura McMullen, Head of Business Development for peer to peer lender Funding Circle, explains a little more about how this flexible form of finance can match the speed of delivery required for short term loans…

Most intermediaries have an accurate understanding of what peer to peer lending brings to the market, particularly for the funding of commercial loans. 

At Funding Circle, our online platform acts as a meeting place for investors looking to invest their money and businesses looking for loans. Funding Circle is already gaining significant interest from advisers and their business clients, particularly with the current shortage of conventional funds and the often tedious, long winded process currently adopted by the big banks.

The product itself offers simplicity, transparency and flexibility. Not only have we created a process where loans can be completed in days rather than months, we have a unique product offering, for which demand is high.

Business clients can borrow up to £250,000, including up to £100,000 unsecured. Once the interest rate is set, it is fixed for the duration of the loan. Every loan has a one, three or five year term with repayments made monthly, but since there are no early repayment charges, the facility is particularly flexible. With the ability to borrow more as a top up after six months of repayments, Funding Circle provides a particularly useful facility to business owners. 

Consequently, this flexibility provides intermediaries with an alternative opportunity to help clients. Firstly, it can be used as a conventional loan with its fixed end date and the added benefit of being able to top up to £250,000. Secondly, it becomes an alternative way of creating a revolving credit facility as it can be repaid at any time without penalty. 

Having completed the application process once, a new loan agreement is often easier to arrange, assuming the company’s circumstances have not materially changed. Lastly, there is the flexibility of using our facility for short term funding projects, which are either going to be refinanced over the long term or sold on to facilitate a short term profit opportunity. 

Funding Circle considers all sectors but we do not currently lend for direct property development purposes. Whilst it isn’t traditional bridging, the Funding Circle proposition has the flexibility to provide a variety of options for businesses and their advisers.

The future of small business funding is, without doubt, primarily dependent on supply and whilst we, and other peer to peer lenders, are currently only small, we are growing at an exceptional rate. We provide a flexible product that can be adapted to meet the needs of today’s small businesses which goes some way toward meeting the shortfall caused by the banks’ inability or unwillingness to increase funding. 

We also believe that having the funds available but being unable to deliver them within a reasonable timeframe is equally unacceptable. Our unique online platform, which is open 24/7, allows investors and borrowers to do business simply and quickly. Funding Circle facilitates the process by risk-assessing potential borrowers and only allowing those that both meet our criteria and are stable and creditworthy onto the site, usually within two days of application. 

Once enough investors come together to meet the funding requirement, the weighted average interest rate is the final rate the business pays, which is then fixed for the duration of the loan. Funding Circle then handles all the payments from both sides accordingly.

This is a business model that provides speed, service and flexibility. Funding Circle and platforms like ours are showing the way forward for small businesses and those who advise them.



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