With economic recovery expected to be driven by small business growth, the Forum of Private Business is seeking stories from thriving firms as part of its Get Britain Trading campaign in order to pass on the secrets of success to other entrepreneurs.
What’s your company called and who is behind it?
Funding Circle is an award-winning online marketplace where people directly lend to businesses in the UK, sidestepping the banks and supporting the core of the UK economy.
The business was launched in August 2010, by myself, Samir Desai and Andrew Mullinger.
What is your start-up story?
We looked at the model of bank lending to small businesses and felt the whole process was out of date and crying out for new and innovative thinking.
The greatest problem is that the current industry is stifled by a lack of competition. At present the top five high street banks contribute to 90 per cent of the lending market to small and medium-sized businesses.
Meanwhile, the low Bank of England base rate means savers are getting poor returns on their investments. We felt there was an opportunity to bring these two groups together. We wanted to create a model that enabled people to receive high, stable returns for the long-term, and businesses to obtain low cost finance to expand and develop.
The idea appeals to businesses because they can access fast, convenient finance at a competitive rate, while investors receive attractive returns and get to see exactly where their money is going and the good it is doing – something that would never happen with a bank or other investment products. We’re also not hampered by outdated IT systems either, which makes our whole process quicker and more efficient than a bank.
Do you have any other thoughts about your market and how you operate in it?
The small business lending market is worth approximately £76bn per year so there is considerable room for growth. In time, lending through Funding Circle could account for 10 per cent of that market. Funding Circle’s growth has been exponential, and next year, the business is forecasting £200m in loans to small business.
Any thoughts on the future of your company?
Funding Circle is the most significant disruption to the small business lending market of the last decade. An industry which was once slow and uncompetitive has been challenged by a new player, offering better returns for investors and easier access to both businesses and investors. In time, Funding Circle could become the business lending exchange in the UK.
What new Government policies would help you run a business?
We have applied to the Government’s Business Finance Partnership scheme and we are hopeful that the Government will start directly lending through Funding Circle this year.
We also believe that banks in the UK currently exhibit unfair tax advantages over individuals wishing to lend to businesses. Typically, individuals pay a higher rate to lend money than the banks do and unlike banks they do not have the ability to offset any losses against income.
The introduction of tax incentives to encourage individuals to lend to businesses would help invigorate economic growth. There should be strong consideration given to the reduction or removal of income taxation on individuals wishing to invest debt in UK businesses, similar to that offered through the EIS scheme. This would free up individual investors to lend to a wider range of businesses helping them grow and expand, and driving the economic recovery in the UK.
