Decoding a Business Loan from Funding Circle

Decoding a Business Loan from Funding Circle

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Let’s start with some background about Funding Circle. Funding Circle was founded in the UK back in 2010. In 2013, they purchased Endurance Lending Network, which also focused on small business loans in the USA, and rebranded it as Funding Circle. Funding Circle has originated over $500M of loans to date and built sophisticated underwriting models from their dataset across UK and USA borrowers. From their name, you know there’s a funding circle behind it. When you apply for a loan on Funding Circle, the funding is not directly from the company but is instead funded by a circle of institutional/accredited investors vetted by them.

I went through the loan application below. Unlike a LendingClub Business Loan, Funding Circle doesn’t offer instant pricing. I wasn’t able to get the exact pricing (because I don’t actually have the said business) but I was able to get pre-qualified and know the range of interest rates and the documentation required. Here are the attributes I put in:

  • Amount requested: $250K & 5 year-term
  • Purpose: Expansion & Working Capital of a 2nd Hair Salon
  • 3 Years in Business
  • 3 full-time employees including me
  • $500K annual revenue. $100K profit
  • 100% LLC Owner

Here are the screenshots of the application process:

First the pre-qualification:

 

Personal information

 

It appears that you have to be 2 years in business with $150K+ annual revenue, a profitable year in at least one of the past 2 years and no bankruptcy to qualify. (They do qualify younger franchise businesses given their expertise.)

 

Are you eligible? Check boxes

 

Clicking on “Check Eligibility”. I was pre-qualified. Now I need to input my business information.

Funding Circle requires a personal guarantee on all their loans. They also asked for the number of employees and number of locations I have.

 

Input business information

 

Plus more detailed questions about the business, loan purpose and why Funding Circle should lend to you. These are typical questions banks would ask you. If you have experience applying for a bank loan, this should be a piece of cake.

 

Next they want information about your personal finances:

 

Some basics.

 

Input personal information

 

They’ll ask for more details about your liquid assets and make sure you are not a criminal or in some kind of legal trouble:

 

Are you in legal trouble?

 

Clicking on “Review your application” gave me this:

 

Funding Circle Agreement

 

By clicking on “Submit” I was able to see the required documentation I have to submit before I can get an approval.

Upload documents

 

I didn’t get the pricing on my loan application instantly; all I know is that my interest rate will be between 12.49% – 20.99% with 2.99% origination fee and no prepayment penalty. This seems pretty comparable to LendingClub’s business loan. Here is the detailed pricing on their website.

 

Interest rates and fees

 

I talked to a loan officer on the phone and he told me that after I submitted all the docs, they will run it through their underwriting model and give me the exact interest rates in a couple of days. They use both submitted and third party data to determine the rates. Since I do not have an actual eligible operating business for the loan application, I can’t get the exact pricing. But I think the whole process gives me a pretty good idea on what it’s like to get a loan from Funding Circle.

Funding Circle vs LendingClub Business Loans


The following table compares the Funding Circle Loans vs. LendingClub Business Loans.

Funding Circle LendingClub Business
36 month loan origination fee 2.99% 3.5%
36 month loan interest rates 9.99% – 18.49% 14.9%***
36 month loan APR 12.76%- 22.74% 17.43%
Loan amount $25,000 – $500,000 $15,000 – $100,000
Loan Duration 3-5 years 1-3 years
Speed to funding 1-2 weeks 1-2 weeks
Required Documentation 2 years of P&L
2 years of balance sheets
3 years of tax returns
6 months of bank statements
3 years of tax returns
6 months of bank statements
*** based on a particular example

As you can see, Funding Circle and LendingClub have pretty comparable pricing. Funding Circle lets you borrow a larger amount – up to $500K compared to LendingClub’s $100K. However, Funding Circle requires you to submit more thorough financial statements while LendingClub only needs tax returns and bank statements. It’s up to you to determine which one suits your needs better, but if you need less than $100,000 that you can pay back in less than 36 months, I would recommend you to apply for both and compare the loan offers.

I would also recommend you to try to get a bank loan since that’s usually the lowest cost option. But if it doesn’t pan out, as an established and profitable business you are very likely to be approved by LendingClub or Funding Circle.

Finally, let me share a secret with you. There is actually quite an overlap of investors who invest in Funding Circle loans and LendingClub Business loans. I wouldn’t be surprised if you get very similar loan offers from them. But it’s always a good idea to shop around and get the best offer. In general, Funding Circle is a great alternative to bank loans!

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About the Author — Yun-Fang is a small business advisor who has lived in the SF bay area for 15 years. She is a software engineer and has worked at Yahoo!, Facebook and Soldsie prior to becoming an advisor for Nav. She is passionate about using technology to connect people and to make the world a level playing field.

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