P2P Money Blog

Funding Circle have announced that the UK government have started to lend through Funding Circle as of today.

Here is their full statement, repeated on the Funding Circle forum:

Today, we’re pleased to confirm that the process with the Department for Business Innovation and Skills (BIS) has been completed, contracts have been signed and from Monday 25th March, the Government will start lending.

Before this begins, however, we wanted to update you all on how this will work and why we believe Government involvement will increase awareness of Funding Circle in the business community and consequently provide more lending opportunities for investors.

How will lending work?

From Monday, the Government will start lending to all businesses which meet their criteria (more details on this are available in our FAQs). They will fund each loan at a set amount which will be fixed at any point of time.

This will start at 20% of the total loan amount, as shown in the picture below, and will decrease over time as the £20 million runs down and the value of loans being accepted through Funding Circle increases.

The remaining 80% of a loan will be funded in the normal way and your lending experience will stay the same. Once a loan closes, the Government will fund the 20% at the average interest rate of all successful bids on that specific loan.

The Government will only take part in new loan requests and will not purchase any loan parts from existing investors.

Will this affect opportunities to lend?

Since the Government first announced plans to lend through Funding Circle we have seen an upsurge in interest from businesses. Many businesses have told us that this is directly as a result of the Government news.

Interest from businesses has particularly picked up over the last two months. As result, in the last 30 days there have been more opportunities to lend than ever before with £10m being lent to more than 170 different companies. The Government’s involvement will also allow us to list larger loans on to the marketplace and as such we have increased the upper loan limit to £1 million.

There is approximately £7 billion of lending to businesses every month in the UK, so the opportunities remain significant. We will be working hard over the coming months and focusing our efforts on attracting more businesses to join Funding Circle.

Demand for loans through Funding Circle has recently increased and caught up with the additional supply that had suppressed returns to lenders.  While 20% may seem a large figure, demand is growing at tripple digits per annum, so this should not have a major impact to lenders in the medium term.  With the additional press coverage, and the increase in the maximum loan to £1M, this should bring in additional borrowers.