Written by: The Arun Business Partnership
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The website, which is called fundingcircle.com, allows potential investors and lenders the chance to compete for loan offerings to individual businesses that are seeking an alternative and cheaper form of borrowing than what is offered by banks.
Backed by private equity giant Jon Moulton of Better Capital, Towergate chief executive Andy Homer and 2009 BBC Apprentice winner Yasmina Siadatan, the website offers monthly repayment loans with values between £5,000 and £50,000 for either one or three years, and claims it will offer small businesses savings of 25 per cent on the total cost of funding.
Laurie Edmans CBE, chairman of Funding Circle, said: ""We expect businesses to be able to reduce their total cost of finance via Funding Circle by approximately 25 per cent, and borrow in a quick and easy process without banks’ high charges and tie-ins.
"Research by the Forum of Private Business (FPB) shows that small businesses are currently being charged an average of 11 to 12 per cent interest on unsecured loans by banks. Many are even paying as much as 18 per cent. These interest rates, combined with additional high arrangement fees and burdensome application processes and redemption penalties, are discouraging businesses from borrowing money."
The service works by lenders using the website to offer a loan with an interest rate to a borrower. Lenders compete on interest rates with the lowest rate becoming part of the loan through an auction process similar to eBay. After the lowest cost of finance is made available, the borrower decides whether or not to accept that offer.
Lenders are also able to form "circles" where they can all lend to a business which meets requirements or characteristics valued by more than one interested investor. Funding Circle claims to offer savers higher rates of interest than are typically available in savings accounts or other investment products, and allows lenders to access their money at any time by selling parts of their loans to other lenders.
Jon Moulton said: "There is no doubting that Funding Circles offers a new, high-interest asset class with an excellent level of risk-adjusted return.
"This is particularly attractive for people disappointed with the low rate of return on bank deposits. I expect this asset class to grow substantially and become part of a good investor’s portfolio over the next few years. "
Graham Sands Managing Director
Amril Limited
01903 215748
www.amril.co.uk
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