There are now more options than ever before for companies to borrow money.
Traditionally, new start businesses and firms less than 2 years old have struggled to get their hands on finance. Now, there’s the government-sponsored Start Up Loan Company (TSULC) which offers you up to £100,000 plus four independent finance firms offering businesses over six months old up to £200,000. We’ll be covering both and the new “fintech” companies in separate blog posts in the coming weeks.
Another brand-new type of entrant to the market is the crowdfunding platform. In this article, we’ll be looking at business loans (not asset or property finance loans) offered by the biggest UK company in this field, Funding Circle.
Funding Circle – what it is and what it isn’t
Funding Circle matches borrowers with lenders. Companies advertise the fact that they wish to receive finance on there and investors then make a decision whether to invest in them or not.
The only form of investment on Funding Circle is debt finance – a business loan.
Other crowdfunding platforms also offer business loans but they also offer equity investments (where you take a small shareholding in the company based upon your level of investment).
Funding Circle is not a particularly speculative platform backing high-risk companies – its sole purpose is to provide the safest haven possible for investors’ cash. It does not back start-up companies – you have to be able to produce at least two years’ full accounts before they will consider your proposal.
Your proposal has to be fully funded before you will get the money. No overfunding is allowed.
Funding Circle – how does it work?
In its earliest incarnation, companies went onto the platform and had to wait sometimes a couple of weeks for their loan to be fully subscribed.
Since then, the platform has achieved a dominant position in B2B commercial finance. It now counts among its investors the government-owned British Business Bank, institutional investors, and even some local authorities.
Once your loan request has been approved by Funding Circle’s underwriters, it then goes live onto the platform. Most deals are now fully subscribed in minutes.
In business, nothing is ever guaranteed but if your loan does go live on Funding Circle, it’s almost certain to attract enough investors to back the loan.
Funding Circle – how do I apply?
You can either apply direct or via a broker.
Either way, you’ll need to provide your last annual accounts (that’s the full and complete version we give you, not the shortened version we send to Companies House) and your latest management accounts. You may be asked for, as part of the decision-making process, recent bank statements, VAT returns, and for explanations on usual movements of money within your business bank account or balance sheet.
You’ll be then asked to provide a direct debit mandate, I.D. and proof of address documents for all guarantors, and, if it’s a limited company, a personal guarantee. These will be sent by email – you should print them off, fill in the blanks, sign it, scan it, and send it back.
Once you have passed underwriting and you have given your agreement, the loan goes live on the platform. Once fully funded, you receive the funds within 24 hours.
Funding Circle – what do they charge?
The interest rate you pay will vary according to how long you’re borrowing the money for and the credit risk level Funding Circle assign you. At the moment, there are 6 risk levels and these are their current interest rates on funding facilities based on length and risk –
Out of the amount you’re borrowing, Funding Circle (and the broker) will take a fee which will reduce the money you actually receive. That fee is between 1.5% and 6% of the value of your loan.
There are no early repayment fees so you can pay off your loan to the value of the outstanding capital and the interest up to the day you make the repayment.
Funding Circle – how do I make repayments?
Payments are collected in equal monthly instalments over the time period of the loan. They are collected from your nominated account – normally your main trading account.
Funding Circle – what if I miss a repayment or I default on the loan?
If you’re more than 7 days late in making a repayment, Funding Circle may apply an administration fee of 15%.
If your loan is placed into default, they may also charge another administration fee of up to 15% of the remaining arrears. On top of that, they may also levy a collections charge of up to 20% of the total loan amount outstanding.
|Total Loan Amount outstanding at default date||Maximum charge|
|£1.00 – £25,000.00||£2,500.00|
|£25,000.01 – £50,000.00||£5,000.00|
|£50,000.01 – £100,000.00||£7,500.00|
|£100,000.01 – £250,000.00||£10,000.00|
|£250,001.00 – £500,000.00||£12,500.00|
You may incur other costs, including…
|Pre-litigation asset tracing||£500|
|Service of statutory demand||£195|
|Winding up petition||£2,828|
|Taking additional security||Variable|
|Court action for money judgment||Variable|
|Enforcement of judgements||Variable|
|Application for charging order||Variable|
|Application for order for sale||Variable|
|Appointment of administrators||Variable|
Funding Circle – what if my business fails and there is still money outstanding on the loan?
When you signed your loan documents, you signed a director’s guarantee. What this means is that you become personally liable for the loan if your company can’t make the repayments.
Funding Circle may apply for a charging order against your property if there is a permanent default on the loan. That means they may also force you to sell your property so that they can recover any money that’s owed to them (whether they actually can or not depends on the decision of a court).
Before you sign any director’s guarantee, whether for Funding Circle or not, please take the relevant documents to your solicitor for their professional opinion on the rights the company will have over you and your property should you not be able to pay them back.
Funding Circle – how can Smart Team help?
Funding Circle are a reputable and well thought-of lender. We have listed everything in this article, including those things that would be detrimental to you if you failed to keep up repayments, so you have all the facts. Funding Circle’s policy of debt recovery and their steps they take to protect themselves against bad debt are no more onerous than any other lender, including a high street bank.
If you want to talk about using Funding Circle to help grow your business or to fund you when trading is a bit slower, speak to us first. We may be able to find a way with you to achieve what you want without access Funding Circle loans.
If you really want to go for a loan, getting the help of your Smart Team accountant will help your application and your credibility as we present them with the correct, accurate snapshot of the business they need together with any later supporting documentation and information they ask for.
Ask Smart Team for help on 01202 577500 or email [email protected]