Funding Circle sees shares dive after growth warning

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Funding Circle, a company allowing people to lend money to small businesses, has seen its shares dive after it halved forecasts for revenue growth.

The peer-to-peer lender now expects revenues to grow by 20% this year, down from its previous projection of 40%.

In response, Funding Circle said the “uncertain economic environment” had damaged loan demand.

Investors were unsettled by the news, and Funding Circle saw shares dip by nearly 30% last week.

Late last year the firm listed on the London Stock Exchange, but since then shares have fallen from the flotation price of 440p to last week when they were trading at about 120p.

“The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria,” said Funding Circle’s chief executive, Samir Desai.

Funding Circle was labelled as a disruptive force in lending, because the company cuts out the need for banks. The lender lets vetted small companies borrow from a pool of funds collected from individuals and firms.

However, the company’s shares took a hit in April, after announcing plans to wind down a fund that financed a number of small business loans.

 

Putting a ‘pause’ on progress

Although Funding Circle has yet to turn a profit, last Tuesday the company said it expected the annual loss for 2019 to be lower than 2018.

“We remain confident in our aim to become the world’s largest small business loans provider, helping millions of businesses to create jobs and support economic growth,” Mr Desai said.

Funding Circle has also said it will be “pausing” plans to expand into Canada, instead focusing on the firm’s existing markets, predominantly Britain and the US.

What happened to one of the UK’s first Unicorn?

Funding Circle still represents one of the UK’s most prominent peer-to-peer lenders, and the company’s disappointing news comes as the sector begins to attract more scrutiny from regulators and investors.

In June, the Financial Conduct Authority announced plans to limit the amount private investors could put into peer-to-peer lending firms.

For some time, peer-to-peer lending have been seen as the ‘next big thing’ in small business lending, and it’s easy to see why. The idea is pleasingly simple and appeals to our desire to support new small business.

The disruptive model was meant to make life difficult for banks, letting individuals and companies alike lend money to up and coming small businesses who needed it.  Tech investors quickly got behind the company, and made Funding Circle one of Britain’s first ‘Unicorns’ – private companies valued at more than $1bn.

However, there have also been doubts, as there are with any disruptive business model. Many said that Funding Circle would not be able to predict the success of small companies as accurately as the banks who had been doing so for years. Others suggested that Funding Circle may well be left with the companies already rejected by the banks.

Chris Wilson from All Purpose Loans commented: “The role of challenger banks and alternative business lenders still plays a huge role in our economy and society. Particularly those with adverse credit histories and the self-employed are able to get access to finance more efficiently.’

‘There are still thousands of people and business owners that use these products every year and it is good business for everyone involved.”

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