Crowd funding aims to give freedom back to businesses

Samir Desai
Thursday, June 14, 2012

The recent news from that the government will commit 100m in funding through non-traditional channels, such as peer-to-peer lending, is welcome news for small business owners.

The recent news from that the government will commit £100m in funding through non-traditional channels, such as peer-to-peer lending, is welcome news for small business owners.

With the top five UK banks accounting for 90% of the small business lending market there is a distinct lack of competition in the industry. This means that when the old establishments seize up, as is the case currently, there are no alternative options for small businesses looking for finance to grow.

Until recently, this lack of competition was preventing small businesses from expanding. However, over the past 18 months, a number of new and innovative players that challenge the status quo have emerged, and it is very encouraging that the government has now recognised the impact these new players can have.

At Funding Circle, we are one of these new breeds of business. We operate a crowd funding, or peer-to-peer, mechanism where people can directly lend to small businesses in the UK.

The concept is straightforward: groups of people looking to invest their money are connected with borrowers looking for access to fast and convenient finance. From a business’s point of view, each loan is comprised of small amounts of borrowing from many different people who compete to lend to it, enabling it the business to borrow at a highly competitive rate.

Businesses can benefit from peer-to-peer lending platforms because they offer quick and convenient finance in days, fixed-rate monthly repayments and a lack of application fees or early repayment charges. Because people are lending money directly to businesses, there is no middle man or bank spreads, so businesses and investors get a better deal. On average, a business that borrows money through Funding Circle will pay 8% interest.

Crucially, the whole process is significantly quicker than using a bank. Typically, a business will spend 30 minutes completing an initial online application form. This can be completed at any time and isn’t fixed to the typical 9am-5pm window that exists with banks. On average 45% of all initial loan applications are completed outside of bank working hours. If successful with the initial application, Funding Circle’s credit assessment team then review every application and contact the business at a convenient time to discuss its loan needs.

The success of Funding Circle is proof that businesses are demanding more choice when it comes to finance. Since we launched in August 2010, we’ve helped individuals lend more than £35 million to more than 800 small businesses in the UK, and at present our investors are lending £1m per week.

Funding Circle is not alone. Others, such as Seedrs and Crowdcube, are also using crowd funding for equity finance.These emerging industries are still embryonic, but their potential is huge. For the first time in generations, business owners now have real choice about how to achieve finance.

This potential is starting to prove itself and support from government will only help to further raise the profile of new and alternative lenders. It will also increase awareness among small businesses – the engine room of the UK economy.

– CEO and co-founder of Funding Circle Samir Desai

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