Funding Circle to launch new SME financing venture

Monday 28 September 2015

The alternative finance company Funding Circle has announced that it intends to float a new London-based listing as part of a bid to generate £150 million to help boost small to medium-sized enterprises (SMEs), after speculation about its next move has been growing for months.

Funding Circle specialises in peer-to-peer loans, which it facilitates via low-cost online platforms. If its SME Income Fund is listed on the London Stock Exchange, it will become the first peer-to-peer organisation to float its own fund.

The money raised will be invested in UK and US SMEs that use Funding Circle’s services. A minimum of 50 per cent of the funding awarded must go to UK businesses in a bid to reflect the company’s British roots. However, there is apparently potential for the fund to cover businesses outside the UK and US in the future, with the rest of western Europe being cited as a possible target for expansion.

Peer-to-peer lending can be a mutually beneficial alternative to traditional bank loans, as the business receiving funding can obtain cheaper finance, due to lower overheads, particularly where a large portion of the lender’s activities are carried out online. In return, investors can achieve greater returns on investments than they might otherwise be able to while interest rates remain at their current low.

However, this isn’t always the best solution for all SMEs, so make sure to consult with your accountant to make sure you’re picking the best financial product for your needs.

In terms of the SME Income Fund, investors will be able to back companies through ISAs, meaning that they will not be taxed for their participation. Funding Circle has also confirmed that it will not charge investors performance or management fees, although there will be a servicing charge of one per cent per annum.

At present, Funding Circle’s operations are targeting eight to nine per cent returns per year, with a dividend yield of six to seven per cent.

Samir Desai, chief executive of Funding Circle, said: “This will be the first fund to exclusively lend to small businesses through the Funding Circle marketplaces, and is a response to the huge demand we’re seeing from a wide range of investors for small business loans.

“Today marks an important step on our journey to creating a global marketplace where any investor, big or small, can lend to small businesses across the world.”

Peer-to-peer lending has been an increasingly popular option in the wake of the financial crisis, which left many banks reluctant to approve loans, and investors often less ready to back ventures through established channels due to the high level of risk and the likelihood of low returns.

By Victoria McDonnell

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