According to a recent survey, self-funding is the most popular form of funding for small businesses, with almost 50 per cent of the firms polled either using their own money or getting help from friends and family, a sharp rise from the 26 per cent who were doing so a year ago.
A spokesman for the survey’s organisers described the findings as “worrying”, adding that casual arrangements such as this bring with them inherent problems. He added that, aside from the risks of linking business and personal interests too closely, self-funding is unsustainable over time.
However, the new partnership between peer-to-peer lender Funding Circle and a leading bank may change the way that small firms that fail to find funding from the big banks can access alternative lenders and is a sign that alternative finance providers are achieving mainstream acceptance.
Their new referral arrangement will see the bank proactively refer small business customers looking for a loan to Funding Circle, the online marketplace for business loans. Where Funding Circle is better placed to help, the referrals will take place on the bank’s website and in letters to customers.
To date Funding Circle has helped more than 5,000 businesses borrow £290m through its marketplace. It said its rigorous and proven credit assessment process has seen investors earn an average of 6.1 per cent after fees and losses.
As part of the relationship, Funding Circle will signpost its customers to the bank where they require day-to-day relationship banking support or other services that the bank can offer, such as international banking expertise, cash management and support for growth.
