One of the major success stories of the alternative business finance market has been the growth of specialist P2P lender Funding Circle, which has now lent well over £2.3bn to small companies since its launch in 2011. And the evidence is that its focus on providing unsecured loans to very small companies – the average borrower has eight employees, the site reports – has entered a new phase of growth.
In the final quarter of 2016 and Q1 this year, Funding Circle's net lending to businesses was £167.2m and £173.4m respectively – up about 75% year-on-year in both three-month periods. The figures, reported quarterly by the Peer-to-Peer Finance Association, suggest a marked acceleration in lending volumes since last October at Funding Circle, which is by far the UK's biggest provider of P2P term loans businesses.
Funding Circle's focus on unsecured loans to smaller companies averaging about £60,000 – a larger sum than banks are usually willing to offer without asset backing – has allowed it to stake out a well-differentiated position in the market. And given the asset-light nature of so many modern businesses, its willingness to lend on the basis of the borrower's cash flow makes its offer especially attractive – so much so that in February, RBS launched an online platform (www.esmeloans.com) that offers a very similar service, using technology licensed from Ezbob, an online non-bank lender that offers business loans of up to two years.
Esme provides unsecured loans of up to £150,000 to small companies and promises the same super-quick decision process that has helped to make Funding Circle so popular. Its early days for Esme but with rates that are very similar to those offered on Funding Circle, it looks as though the market for unsecured business loans is starting to bubble.
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