Squaring the business loan circle

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Peer-to-peer or P2P lending is one of the most exciting areas of personal finance on both sides of the Atlantic. Through technology it does what betting exchange do in their realm by cutting out the middleman – in the case of P2P lending the banks – and hence offering market-leading rates on both sides of the transaction.

It is a popular route for many consumers looking to make a better return that that offered in the current ultra-low interest rate environment, but P2P lending isn’t purely a consumer finance proposition. It can also offer businesses an attractive financing option.

Funding Circle is one of the leading P2P lenders in the UK market, and has backing from a betting industry insider. Ed Wray, founder of Betfair, is an investor in the firm and sits on the board. The company was founded on the premise that there is a funding gap when it comes to lending to small and medium enterprises in the UK. It is an area that, despite the wishes of the government, has been vacated by the high-street banks and filled with a range of P2P lending options.

There are some caveats that need to be added however. This is not an area for start-ups; Funding Circle point out that it needs a company to have a two-years trading history before it will look at funding your business. If you need start-up funds, and you want to go the peer-to-peer route, then crowdfunding would be the best option.

However, if you fulfil that two-year trading criteria and you are effectively in scaling-up mode, then P2P business loans could be a good way to raise cash without disturbing your current equity set-up.

How much can I borrow?
Funding Circle, the leading P2P SME lender in the UK, offers businesses the opportunity to borrow anywhere between £5,000 and £1 million, repayable over six months to five years. Funding Circle has a range of four types of loan, of which three would be relevant for businesses in the gambling space (property finance being the one we will not cover here).

Unsecured loans
These are highly flexible loans that can be used for a wide range of purposes, including working capital, expansion capital, asset purchase and more. Funding Circle requires a personal guarantee as security. 

Secured loans 
These loans can also be used for a wide range of purposes, including working capital, expansion capital, asset purchase and more. Typically, Funding Circle takes a charge over all assets of the business as security. A personal guarantee may also be required. 

Asset finance 
These loans can be used to purchase a new asset or re-finance an existing one. The title to the asset is held as security by Funding Circle Asset Finance (or alternatively, Funding Circle take a charge over it) until the loan is repaid. Funding Circle can also fund the VAT if required. 

The application process for Funding Circle is very simple. The whole process is completed online and with no need for face-to-face meetings, and all a company needs will be formally prepared accounts and bank statements going back three months. Funding Circle may also require management accounts (depending on the age of your company), while further documentation will be requested if desired by the credit team.

The live loan marketplace
Once the Funding Circle credit team has approved your loan application and given your business a credit rating, then your loan is listed on Funding Circle’s marketplace, making your request open to Funding Circle’s investors who will then begin the process of filling in your loan request. The interest rate payable to these investors will depend on the risk band and the term of the loan, with rates beginning at 6%. Funding Circle says your loan can be fulfilled by hundreds of individual investors or one large organization might take on the whole amount. Funding Circle say that most loans are fully funded within juts a few days, though the official loan period lasts for 14 days. As soon as a loan is 100% funded, the borrower accepts the loan online.

One intriguing aspect of the process if the Q&A session. This is where investors get to ask as many questions as they like of the business by email to which you get the chance to respond and explain your business proposition. Funding Circle point out that such an open process often leads to more investor participation and can be a useful process for any business owner.

Paying back the loan
Loans are typically repaid in monthly installments with the cost determined by two factors; the interest rate set by the credit assessment and the one-off fee you take on as part of accepting the loan.

Funding Circle give the example of taking out an unsecured £50,000 loan over three years. With an A+ credit rating the fee would be 3% - hence you would receive £50,000 minus the £1,500 fee or £48,500. You would then pay interest of 7.75% over the term of three years, or £6,198, meaning the total cost of the loan for your business would be £7,698 with monthly repayments totaling £1,561. Should you miss out on any monthly repayments, Funding Circle may charge an administration fee of 15% of the repayment amount.

Early repayment and taking out further loans
Funding Circle allows borrowers to repay the full amount early with no penalties. Borrowers can repay the full amount owing on the loan, including the interest for that month. Alternatively, companies can also apply for second loans before they have repaid the first loan as long as three months; repayments have been mad eon the initial loan.

For more information, go to fundingcircle.com.