UK peer-to-peer lending platform’s fundraising circle raises $ 37 million, targets US SMEs in merger with Endurance lending network – TechCrunch


Small businesses have been called the lifeblood of our economy, and today a financial services startup has secured significant funding to help it run better. Funding Circle, a UK-based peer-to-peer lending platform that allows individuals and institutions to lend money to small businesses, has secured $ 37 million in funding. At the same time, it announces its intention to expand its activities in the United States, its second market, as part of a merger with Endurance Lending Network, based in San Francisco. Its ambition, in the words of co-founder and CEO Samir Desai, is to become the “NYSE of small business loans”.

Entering the United States will also bring a new wave of competition to Funding Circle. Today, under the JOBS Act, there are already a number of crowdfunding initiative platforms, including Kickstarter and Indiegogo among the most popular. Now, the new, more relaxed crowdfunding rules proposed by the SEC could see the number of companies increase.

Funding Circle Series C was led by new investor Accel Partners, with participation from Ribbit Capital (another new investor) and Union Square Ventures (also a Kickstarter investor) and Index Ventures. The latter two also teamed up in a $ 16 million Series B round in April 2012. That brings the total raised by Funding Circle to $ 58 million.

Samir Desai, the co-founder and CEO, told me that as part of its merger agreement, Endurance will change its name to Funding Circle USA. It’s a practical union: Endurance will give Funding Circle regulatory and country-specific knowledge, while Funding Circle will come with experience and capital-based risk modeling to take on the United States more aggressively. Desai estimates that today there are around £ 14million ($ 23million) on loan every month in the UK, “and we think it’s three to four times as much in the US”.

“Like Funding Circle, Endurance Lending Network was created to help millions of small, private businesses with the money they need to grow,” said Alex Tonelli, co-founder of the American startup, in a statement. “As small business owners, we know how urgent the need for a viable alternative to bank loans is. (Tonelli, who co-founded the business with fellow Stanford graduate Sam Hodges, says he was prompted to start it when he was refused a $ 75,000 loan to develop a center business. existing fitness center.)

The smallest American company had raised some $ 1.5 million from angel investors, including Barry Silbert, the founder and CEO of Second Market.

Since 2009, Funding Circle claims to have facilitated more than $ 250 million in loans in the UK, the only market in which it has operated so far. Although it started out as a platform for ordinary people to lend money, it has expanded over time to include accredited investors, institutional investors, the UK government (which has put in 20 million pounds / $ 32 million in its market as of December 2012) and even the banks it was originally created to shake and disrupt. This is because it has become financially impossible for banks to give small loans to small businesses, but they still want to keep those businesses as larger customers.

“A lot has changed for the banks since 2008. The high capital requirements have caused them to pull out of the low end of the market, and therefore the investments of £ 50,000″ – the average amount loaned on Funding Circle – “are too expensive for them to do. But rather than losing these companies as customers, it’s better to partner with Funding Circle, “said Michel Kotting, Accel investor.” This means they can still serve customers they can’t serve themselves. ”The typical turnaround time for a loan is days from request, compared to 15-20 weeks if the same loan was requested from a bank.

In the United States, the model will be modified somewhat: loans will only be open to qualified investors; non-accredited people will not be able to invest. Desai says this is in part due to regulatory issues (although that may change, according to today’s SEC news), but he also points out that this does not mean a small group of lenders, as it There are some 10 million accredited investors in the United States today.

So far, Funding Circle’s business model has been effective in providing money to businesses that need it to grow. It turns out that there are a lot of small businesses that need capital for projects that haven’t been able to raise it elsewhere. “These aren’t the types of small businesses you read on TechCrunch,” he told me, saying it was an average of 10-year-old businesses. “The size of the UK market alone struck us as huge. This is the reason why we did not have to go to other countries. We didn’t have to go to the US but felt it was a huge opportunity and we are very excited. Indeed, figures from the Small Business Administration (provided by Funding Circle) estimate that there is a $ 100 billion funding gap in the US economy with small businesses.

Desai says typical loan periods for transactions on his platform are around 48 months, but with a range of between six months and five years, with an average interest rate of 9%, small compared to traditional banks. He says over 70% of businesses who have borrowed through the platform are coming back for more.

“We have a lot of investment in the market and we find that one side has to work well to make the flywheel work,” says Kotting at Accel. “Here we have it on both sides, for borrowers and lenders. It is an extremely advantageous situation.

Indeed, on the loan side, it is also a success. Using the risk modeling and credit profiling algorithms created by Funding Circle, investors can invest directly in specific companies and projects, or can spread their bets over a range they select or choose Funding Circle to select by their name. In total, these investors typically get returns of 6-10% per year. No rock star comeback, but a stable, positive rate that comes with the knowledge that you are doing something to help move the economy at large in the right direction.

Longer term, Funding Circle’s plan will be to expand its platform to cover more business loan services. This will start in part with this latest round of funding in the UK market, where the company will begin to offer loan services specifically for asset finance and real estate.

As part of this investment, Harry Nelis, Partner at Accel, will join the Board of Directors of Funding Circle.

Image: Flickr


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