Social lending platform Funding Circle launches as a Zopa-for-SMEs

Funding Circle is a newly launched peer-to-peer lending site in the UK with a number of heavy-weight backers including Andy Homer, Chief Executive of Towergate Partnership, and Jon Moulton, the founder of private equity firm Better Capital and former managing partner of Alchemy Partners.

A sort of Zopa-for-small businesses, the ‘social lending platform’ facilitates loans to SMEs instead of individuals, giving lenders the opportunity to get an estimated 6 to 9 per cent return on their money. It’s also possible for lenders to get their money back before a loan is repaid by reselling their part of the loan onto other lenders, a first says the company and something that they think will be popular since in this instance interest can be earned immediately without the need to wait for the loan arrangement to be completed.

The businesses that can borrow through Funding Circle are vetted using credit check mechanisms comparable to that used by banks, and lenders split their investment across multiple loans to spread the risk of bad debt. Approved borrowers are also assigned to risk bands to give lenders a clear indication of the level of risk associated with lending to them. And although the interest earned by lenders is more competitive than many other forms of investment, such as a high interest savings account, the model is designed to benefit businesses too who can borrow at a better rate since individuals compete to lend in an eBay-style auction which favours the lowest interest rates on offer.

Individuals can lend between £20-2,000 per business and there is no limit on the total amount that can be lent. Additionally, lenders can club together in ‘Circles’ – hence the startup’s name – to lend to businesses with similar values. So for example, an “environmental circle” could work together to lend to environmentally friendly businesses.

Funding Circle is co-founded by Samir Desai (formerly of Olivant & the Boston Consulting Group), James Meekings (formerly of OC&C Strategy Consultants) and Andrew Mullinger (formerly of Citigroup, Ernst & Young and Nomura). The London-based company is angel funded to the tune of $1.1m from undisclosed private investors.