Funding Circle uses social networks, Yelp reviews, bank APIs, and online asset appraisal solutions to quickly build a credit portfolio for borrowers. This approach removes a lot of the overhead faced by traditional brick-and-mortar lenders, thereby making capital cheaper for small businesses. By leveraging online technology, Funding Circle improves the small business borrowing process and lowers its associated costs.
Funding Circle's standard APR for loan recipients is 10.99%, significantly lower than the rates charged by alternative lenders and specialty finance companies. The target average loan size is $150,000, with an upper bound of $500,000. This loan size is targeted specifically at startups and small brick-and-mortar companies, though there are no hard parameters around the size of the businesses that Funding Circle invests in.
Funding Circle currently services 3 to 5 borrowers per month. Funding Circle commits to expand its lending services to 12 to 15 borrowers per month throughout the next two years. Funding Circle will leverage a variety of channels, including municipal governments, regional economic development committees, federal regulators and franchises, to bolster Funding Circle's credibility and success in the lending space. Funding Circle plans to disburse loans to 75 borrowers within its first year of operations, at which point it can begin segmenting to target underserved borrowers such as female and minority entrepreneurs. Once at scale, Funding Circle plans to move past its initial lending concept to a broader model that addresses the under-participation of women in the small business marketplace.
Funding Circle commits to expand its lending services to 12 to 15 borrowers per month throughout the next two years and accumulating enough data to automatically and reliably credit-score applicants. Funding Circle plans to disburse loans to 75 borrowers within its first year of operations, at which point it can begin segmenting to target underserved borrowers such as female and minority entrepreneurs. Funding Circle needs to prove out its lending model at scale before it can raise the capital and employ the team required to effectively target women and minority borrowers.
6/2013 to 7/2013: Collect and test metrics of the Funding Circle lending model. Funding Circle started making loans in February 2013, and has doubled monthly origination every month (MoM) since then.
8/1/2013 to 1/1/2015: Once the Funding Circle model has been proven by early loans, Funding Circle will extend the model in high-potential and high-impact segments, including female proprietorship, minority proprietorship, underserved inner city groups and sustainability-focused businesses. Already more than 30% of Funding Circle's loan requests are from such borrowers.
1/1/2015 to 1/1/2016: Examine results and catalyze the development of previously excluded market segments.
Small business owners face a challenging lending environment; even those with strong operating performance, above-average credit, and available collateral. Traditional lending sources don't invest the resources to service small business owners due to small deal sizes, regulatory issues, and challenges associated with an antiquated analysis process. As such, capital availability, even to strong companies, is limited or grossly mispriced. Investment returns for small businesses are often quite high and the default risk is oftentimes mitigated by high personal asset coverage.
Availability of suitable financing at all stages of enterprise development is a key barrier to small and medium enterprise development. Small businesses generate positive social and economic outcomes, they're responsible for over 60% of the new job growth in the past 15 years, and they create more than half of the nonfarm private GDP and significantly contribute to taxation revenue. Small businesses foster innovation and contribute to vibrancy, diversity, safety, and local level service delivery of communities throughout the U.S. According to the Small Business Administration, between 2011 and 2012, only 13% of small business loan applicants received the full amount they requested. Additionally, 37% of applicants were denied any funding. Funding Circle was created to connect businesses with accredited and institutional investors; family offices, wealth advisors, high net worth individuals, fixed income funds, and alternative asset managers.
Funding Circle was created in 2011 to connect businesses online with accredited and institutional investors. This sophisticated lending web-platform allows Funding Circle to aggregate and filter these opportunities into investment pools using a balanced credit algorithm. Funding Circle is set up to lend in 30 states in the U.S. Funding Circle's early focus on franchisees, borrowers follow the natural distribution of franchisees in the United States, across rural, suburban and urban areas. Funding Circle has partnered with local municipal governments and economic development councils such as the Texas, Utah, and Virginia Economic Development Committees to effectively provide capital to underserved small businesses in those areas.