When the soccer team F.C. Barcelona asked Nick Daffern whether his company could set up some merchandise kiosks at its legendary stadium, the Camp Nou, the British businessman knew he had to find some cash fast to fulfill the order.
Within 10 days, he had borrowed £50,000 ($81,000) from Funding Circle, a British company that matches small business borrowers with individuals and institutions that bid to lend to them.
“If we had gone to our normal sources of funds, the banks, we’d have still been waiting six weeks later,†Mr. Daffern said. “But six weeks later we had delivered the units to Spain.â€
Now, Funding Circle is coming to the United States.
To help finance the expansion into America, Funding Circle has raised $37 million from investors led by the venture capital firm Accel Partners. Ribbit Capital, Union Square Ventures and Index Ventures also participated in the financing, which was announced on Thursday. Funding Circle is using some of that money to acquire Endurance Lending Network, a much smaller American small-business lending network set up last year.
“Small businesses are very underserved by the banking system,†said Samir Desai, chief executive and a founder of Funding Circle. “We visited the U.S. and found the problem was as acute as it was in the U.K.â€
Mr. Desai declined to say how much Funding Circle paid for Endurance.
Companies like Funding Circle and Endurance are known as peer-to-peer lenders. A wealthy individual or perhaps a pension fund can go to Funding Circle’s Web site and see a list of businesses that want to borrow. If they like what they see, they can bid to lend to the small business, which will probably opt for the lowest cost loan. The interest rate on the loans may not necessarily be cheaper than what a bank charges, but Funding Circle and Endurance say they can lend much more quickly than banks. The more enthusiastic proponents of peer-to-peer lending believe that it can distribute credit more efficiently than banks.
Funding Circle has made about $267 million in loans since it started in 2010. It has around 20,000 active investors contributing to its loans.
Still, skeptics say the sector may be held back by a lack of investors who want to risk their money lending to businesses and individuals over peer-to-peer platforms.
Right now, some investors say they are attracted to the relatively high interest rates they can earn. Funding Circle’s average interest rate is 9 percent, and their term is 45 months on average. Mr. Desai said that investors in the loans are on average making an annual return of 6 percent after fees and losses, which are running at about 2 percent of loans a year.
Funding Circle itself charges fees for matching borrowers and lenders. It charges investors a 1 percent fee and borrowers a fee of 2 percent to 4 percent. Mr. Desai said that, at current rates, the company could soon be posting annualized revenue of $10 million. He says he expects, however, that Funding Circle will make a loss in the coming months as it hires new employees and invests in new technology.
“We’re using data much more actively than banks have done,†Mr. Desai said. Still, he noted, a human underwriter looks at every Funding Circle loan.
Mr. Desai and two college friends from Oxford University initially invested $97,000 in Funding Circle, and hold the largest stake in the company.
One sector that Endurance is targeting in the United States is lending to entrepreneurs who set up restaurant franchises. But Funding Circle may encounter some crucial differences in America. In Britain, its loans of as much as $160,000 are unsecured, whereas small business lenders in the United States often insist on collateral. Funding Circle’s British loans do have guarantees from company directors, however.
Mr. Daffern, the British kiosk supplier, has so far taken out two $81,000 loans. “I am 58, so I was a little bit skeptical,†he said. “But the money they lent really helped us lift our profile.â€
