Funding Circle is an online peer-to-peer marketplace through which it enables savers to lend money directly to small and medium-sized businesses. Funding Circle was the first online site to use the alternative funding process of peer-to-peer lending for business funding within the UK, it operates in the UK as well as in the US markets.
Funding Circle provides and manages a peer-to-peer platform whereby potential investors are able to browse a list of those businesses who are seeking funding, which prior to Funding Circle will have credit assessed and approved for inclusion in the peer-to-peer platform.
The Funding Circle Process
Businesses submit an application and this is then reviewed by Funding Circle credit assessors. If, and once approved businesses would then post their business loan request on the Funding Circle peer-to-peer marketplace. Through which, investors choose their preferred type of businesses in who they would intend to lend their money to, this being done through an auction-type process. Once they identify suitable businesses they then bid the amount of money they intend to lend along with the interest rate they would want to earn. After the business accepts a loan offer, they make one repayment each month which is collected by Funding Circle and distributed to all the investors. Loan requests are typically made up of lots of investors each bidding small amounts on hundreds of different businesses to spread their risk.
Funding Circle also has an Autobid function which they developed, whereby the system will automatically place bids according to the criteria investors have pre-set. Investors can choose the average rate they wish to offer, which types of businesses they want to lend to, and the maximum percentage of their portfolio to be lent to any one business.
Investors can build up their portfolios quickly by buying parts of existing loans from other investors via the secondary market. Similarly, if investors need to withdraw money at any point, all or part of the investment can be sold via the secondary market. Alternatively, investors can choose to withdraw their money gradually as they receive their monthly repayments. In the UK, loan lengths start at the 6-month mark and go up to 5 years. Businesses can borrow between £5k and £1M to finance working capital, expansion capital, asset finance and one off business expenses.
