3c hapter - Index of

Pennies from Many 137
loans. 9 With little competition, interest rates for small business
loans hover in the range of 11 percent to 12 percent.
That’s where Funding Circle comes in. The company, launched
in August 2010 by a trio of Oxford University chums and backed by
high- profi le private equity players, aims to do for business lending
what Zopa has done for consumer loans. Its online marketplace
gives small businesses access to more affordable loans, while providing
everyday investors with stable, higher yielding investments
and a chance to support small, independent enterprises. In its fi rst
10 weeks, Funding Circle, which has no net worth requirement for
lenders, signed up more than 1,600 people, who made £1 million
in small business loans. The average amount invested was £2,000,
at an average interest rate of 8.2 percent.
“You have to accept some risk in order to get a decent interest
rate,” explains Geoff Chapman, a director at a London- based
fi nancial fi rm and a Funding Circle lender. “But if I put my cash
in a bank, they are the only ones making anything from it.”
Crowdfunding is not necessarily local investing—in fact, it can
often lead to the opposite. But at its best, it can mobilize the desire
of investors to support their communities, whether those communities
are defi ned by physical or philosophical parameters.
One of the motivations driving investors on Funding Circle
has been a desire to support local companies, says Samir Desai,
the site’s cofounder and director. The site encourages members to
form “circles” of lenders who share a common interest. Some of
the fi rst circles were created to lend to companies in specifi c geographic
locations, including Edinburgh, Hertfordshire, and Bristol.
Other lenders have focused on particular sectors. For example, one
circle was set up to support UK manufacturing and engineering
businesses. “UK manufacturing companies are a core part of British
history. Help us lend to and support companies that produce real
things,” the group’s page urges. It attracted 146 members in just
several weeks. Another circle supports small businesses in London.
Funding Circle uses industry- tested credit models and established
data sources to vet borrowers. And its own underwriter looks
at every application, explains Desai. In addition, like most good
P2P lending sites, Funding Circle has made contingency plans to
service its loans should the site cease to exist for any reason.