There’s Now a New Alternative to Banks for Company Finance
Comments: 0 - Date: December 13th, 2010 - Categories: Business Performance, Cash Advance, Your Finance Resources
The UK financial sector is so concentrated that it lacks any form of competiton to the detriment of small businesses. There’s now a new alternative for business loans called Funding Circle. Through Funding Circle business loans are lower cost and faster to get than from the bank.
Through Funding Circle people directly lend to small firms, cutting out the banks. People lend to a wide variety of different businesses to spread their risk. An investor funds a small proportion of a loan and businesses borrow from a variety of of people to ensure they get the best rate possible. Cutting out the banks means a better deal for both lenders and borrowers.
Interested investors go to the website and offer an amount and interest rate to borrowers. The lowest interest rate bids become part of the loan through an online auction. Investors can either choose the firms they want to lend to or they can use a tool which automatically spreads their money across multiple enterprises. Borrowers make a single monthly payment to Funding Circle who then distributes the payment back to lenders using a technology platform.
All borrowing enterprises are assessed for their creditworthiness before being allowed into the marketplace and are allocated a risk band to signal their credit quality to lenders. From application to receiving a loan it takes two to three weeks versus eight weeks at the bank, on average. The loans currently available are up to GBP 50,000 and soon increasing to GBP 100,000.
The latest data from the British Banking Association shows business finance is in decline. Funding Circle is a much needed alternative.