Funding Circle, the UK-based peer-to-peer loans platform that recently raised $65 million for a platform that bypasses banks and lets small businesses connect with individuals for funding, is putting some of that funding to use. It has acquired a semi-stealth startup called LeapPay to speed up the turnaround time it offers on loans, and also to keep expanding its business in the U.S.
Sam Hodges, Funding Circle’s co-founder and U.S. managing director, says financial terms of the deal were are not being disclosed but other details are. As part of the deal, Funding Circle is buying LeapPay’s technology — both the underwriting technology that will help Funding Circle vet and ultimately approve businesses and potential backers; and tech that can be used to extend loans with invoices as collateral.
Funding Circle will only be using the first part of that technology immediately, which integrates with products like Quickbooks, Freshbooks and Xero. The latter product, for offering loans, will remain dormant, potentially to be used at some point in the future. LeapPay’s technology is only usable in the U.S. for now.
But LeapPay’s three co-founders and sole full-time employees, David Golden, Allan Fisch and Alex Kress — people with track records in areas like hedge funds and other financial startup exits — are not joining Funding Circle as part of the acquisition. They will instead go on to new ventures that are not yet being made public.
Golden, LeapPay’s CEO, says that the company was bootstrapped but with a “long list of advisors”. They are not disclosing any names, but Golden did note that Funding Circle was among other interested, high-profile, would-be acquirers, and another option the startup had been considering was raising a round of funding. Ultimately selling to Funding Circle looked like “the right option.”
In general, while LeapPay was live, it was operating “under the radar,” noted Golden.
The key part of the technology for Funding Circle speaks very much to what is most crucial to compete in the online loans market. While Funding Circle already has very competitive interest rates on the products that it does offer — 8.9% currently on a two-year loan, compared to cash advance players whose products whose APR may be as high as 50% — where it wants to move now is it offer a more varied list of loans, and to seal the deal on them much faster — all the more likely to help distinguish Funding Circle from the many other online platforms out there vying for the same small business segment. They include Kabbage, Lending Club, and Fundera, among others.
Before the acquisition, I was told by Funding Circle’s CEO Samir Desai that funding approval could take around a week. The LeapPay acquisition could shave some 30% off that number.
“We see many borrowers who are looking for short-term loans with different structures,” says Hodges. “We intend to offer shorter term and longer term and secured and unsecured loans and more.” That will see Funding Circle, which typically sees businesses take 2.5-year repayment options, get both shorter and longer terms. There are other areas, too. In the UK, Funding Circle has a commercial property loans business, but it doesn’t have this in the U.S. “We think there is an opportunity there,” Hodges adds.