Funding Circle to focus resources on small business lending, eyes international expansion.
Funding Circle, the world’s largest peer-to-peer/marketplace lender by volume, is scaling down its property lending, with a view to stopping altogether by mid 2018. The company, which is active in the UK, US, Germany and the Netherlands, says the decision will allow it to re-focus its resources on its core small business lending product.
Property loans currently account for around 5 per cent of Funding Circle’s revenues globally. They are structured differently to the company’s standard loans and are repaid as bullet loans.
The company will continue to service existing property loans over the next 12-18 months, and will meet any facilities that have already been committed to. These loans will continue to surface in investor portfolios until this portion of the loan book has been fully wound down.
Funding Circle has stressed that this decision is not based on performance. UK MD and co-founder James Meekings points out that investors in the platform’s property loans have earned 7 per cent per year since 2014, equating to £22m of interest.
AltFi Data tells us that property loans have historically accounted for just 2.2 per cent of all defaulted Funding Circle loans in the UK (£1.6m of £73.2m). This is despite the fact that property represents 15.3 per cent of all Funding Circle UK originations to date. The cumulative default rate for its property loans is 0.5 per cent.
Funding Circle's property loans have only ever been available to UK borrowers. Its US and European arms are already wholly focused on small business lending.
Neither the Brexit vote nor Funding Circle’s authorisation status were factors in the decision on property lending, according to a spokesperson. Much more important was the desire to establish an “unrelenting focus” on small business lending – a market in which Funding Circle is already known as a leader.
Co-founder and CEO Samir Desai said that the extra resource that will be freed up by the decision will allow Funding Circle to extend its small business lending product to “more international markets in due course”.
The company declined to shed further light on this, other than to say that more information will be available within the next 12-18 months.
Funding Circle prides itself on the use of advanced data analytics as a means of continuously sharpening its underwriting process. But property lending does not fit with this approach quite so neatly as small business lending does.
The platform currently offers the full suite of property loans, including commercial mortgages, development loans and short-term bridging finance.
Funding Circle's employees were informed of the decision to stop property lending this afternoon. The company will seek to find its property lending specialists new roles within the firm.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.