The UK Government has announced plans to lend to small businesses through Funding Circle. Earlier in the year, the Chancellor George Osborne revealed that £100 million would be allocated to non-bank groups to help ease the problems of low SME lending.
It has been revealed that Funding Circle will be one such vehicle and the Government will be working with them to lend £20m. Funding Circle crowdsources loans for small businesses. While bank lending has dropped, Funding Circle has grown rapidly. In two years since launch, thousands of British people have helped to lend £65 million to more than 1,300 businesses. In Novemeber 2012 alone, investors lent £7m to British businesses.
Everyone will be well aware of the problems that small businesses have had in recent years when it come to getting loans from traditional sources such as the banks. So this looks like a clever and innovative way to approach that problem. It is hoped that the scheme will come into action early in 2013.
Funding Circle makes minimum loans of £5k with a maximum loan of £500k. Investors can lend out from as little as £20 and the gross yield is 9.1%. To find out more about Funding Circle’s loan terms, visit their site.
How will it work?
The Government plans to lend £20 million to British businesses through Funding Circle over the next 12- 24 months. This is subject to parliamentary approval and agreement of legal terms and conditions.
The current proposal is that the Government will lend on every loan that comes on to the marketplace and fund up to 20% of each loan at the average rate. The remaining 80% of a loan will be funded by investors in the normal way, so your investment experience will remain exactly the same. Once the auction has closed and the average interest rate has been set for the remaining 80%, the Government will fund 20% at the same interest rate as the rest of the loan.
You can find out more on the Funding Circle site.
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