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THE ECONOMIC

IMPACT OF
LENDING
THROUGH
FUNDING
JUNE 2018
CIRCLE

The economic impact of lending through Funding Circle

TABLE OF CONTENTS
Foreword4

Executive summary6

1. Introduction10

2. United Kingdom12
2.1 Small businesses’ access to finance 12
2.2 Funding Circle’s UK lending profile 19
2.3 Why do small businesses use Funding Circle? 22
2.4 What is Funding Circle’s full economic impact in the UK? 26

3. United States30
3.1 Small businesses’ access to finance 30
3.2 Funding Circle’s US lending profile 33
3.3 Why do small businesses use Funding Circle? 35
3.4 What is Funding Circle’s full economic impact in the US? 38

4. Germany40
4.1 Small businesses’ access to finance 40
4.2 Funding Circle’s German lending profile 43
4.3 Why do small businesses use Funding Circle? 44
4.4 What is Funding Circle’s full economic impact in
Germany?46

5. The Netherlands50
5.1 Small businesses’ access to finance 50
5.2 Funding Circle’s Netherlands lending profile 55
5.3 Why do small businesses use Funding Circle? 56
5.4 What is Funding Circle’s full economic impact in the
Netherlands?59

6. Conclusion62

Appendix 164

JUNE 2018 3

This powerful combination also allows us to expand the market and help more small businesses. it’s become evident that small businesses are underserved in every country we operate and it is our view that these difficulties exist well beyond our own footprint. this activity Our business was founded in direct response unlocked 75. They’re the ones who’ve taken a risk to see the enormous economic impact that and worked hard to realise their ambitions. reveals the extent to which mission that continues to inspire us. their work inspires us. and we’ve Funding Circle. Today. From butchers and bakers. There are over 150 million of the loan or would have ceased to exist small businesses in the world. By combining proprietary risk models and cutting- edge technology with advanced data analytics. At is stimulated as a result of lending through Funding Circle. 4 . In 2017 alone. this is inevitable in an internet age.000 jobs across our four markets. when banks pulled many of which were created as a direct result back from lending. and Samir Desai half of German branches since the year 2000. This report. all of which without the funding. including over 2. platforms are stepping in to fill the gap.000 in the US last year. 16% of businesses tell us they wouldn’t have been able to access finance without us. are driving much-needed job creation and productivity across their local economies. we help banks have retreated and how online lending them as they change the world. bringing vital innovation to the way small businesses can access finance for growth and ensuring even businesses in the most rural locations can do the same. it’s particularly rewarding economy. a ripple effect is across the world go even further. which is our first global the economy forward. to the 2008 financial crisis. CEO and co-founder of Funding Circle To a certain extent. creating jobs and driving system. Supporting them is a impact study. however they struggle to support this part of the market. seen through supply chains further boosting local communities. to IT consultants Despite this valuable output. Bank branch closures are also on the rise. The economic impact of lending through Funding Circle FOREWORD Small businesses are the unsung heroes of our Within this report. they continue to and accountants. the vast majority of lending still comes from banks. When a business accesses made it our mission to help small businesses finance through our platform. Technology has led to the emergence of online lending. these platforms have made deep pools of capital available to them for the first time. Over the years. these are the businesses that struggle with an unfair and broken financial are made to do more.

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where Funding Circle has been established the longest. By connecting supply directly with demand. disadvantage small businesses and hinder their vital contribution to the global economy. A survey of Funding Circle’s customers undertaken for the study suggests 89 percent of the platform’s UK small business customers would approach Funding Circle first again in future. despite wide-ranging measures to improve access to finance for this demographic. United States. and continues to. In the UK. Funding Circle is the leading small business loans platform in the United Kingdom. This has. the decrease in interest rates has not been passed on to small firms to the same extent as to larger businesses. reducing innovation. Banks have also operated different policies on the fees and commissions they charge. four markets The stock of bank loans to small firms is growing less rapidly in 2017.9 bn Annual gross value In the decade since the financial crisis in 2007/08. and in some countries. a wide range of investors are able to lend directly to small businesses. added supported by Funding Circle’s Central bank data suggests that banks have treated their small loans across its business customers less favourably than larger businesses. THE GROWING IMPORTANCE OF ONLINE PLATFORMS FOR SMALL BUSINESS LOANS A less accommodating stance by banks and the advent of technology has meant small businesses have developed an increased appetite for other forms of finance. This allows creditworthy firms to receive a loan to grow and expand in days rather than months. the platform is now competing directly with banks in the small business lending market – with net lending through the platform exceeding that of the entire UK banking system for two successive quarters at the end of 2017. competition and the number of jobs created. The economic impact of lending through Funding Circle EXECUTIVE SUMMARY SMALL FIRMS CONTINUE TO STRUGGLE TO ACCESS FINANCE £3. rather than going to a bank. 6 . Online lending is at the forefront of these non-traditional options. than for larger corporates. Germany and the Netherlands. small businesses have continued to have difficulties in obtaining bank loans in industrialised countries.

with the remaining 20 and 35 percent. Some 45 percent of the taxes supported were generated by Funding Circle’s customers. 7 .000 jobs at the end of 2017.500 (55 percent of the total) were directly employed at the small businesses that took out loans through the platform.9 billion annual gross value added contribution to Gross Domestic Product (GDP) across the four markets. and the remaining jobs were sustained indirectly through supply chains or by employees’ wage-financed spending. Across the four countries.3 billion in annual tax receipts. the comparisons give an indication of how Funding Circle’s impact may grow in its newer markets—and in any others it may enter in the future. The activity and employment supported by Funding Circle’s loans also generates significant tax revenues for local and central governments in the four countries. jobs and tax revenues. Funding Circle’s loans under management to small businesses at December 2017 supported an additional £3. generated in the small businesses’ supply chains and stimulated by the wage-financed consumption of staff. In practical terms. Funding Circle’s loans were found to enable over 75. As well as establishing its full contribution to GDP.000 through Funding Circle on economic activity in each of the four countries it operates in. Jobs enabled by lending through Funding Circle KEY FINDINGS ABOUT THE IMPACT OF LENDING THROUGH in 2017 FUNDING CIRCLE In total. The total loans under management at December 2017 are estimated to have supported £1. respectively. Some 41.The economic impact of lending through Funding Circle This report investigates the impact of the loans extended 75. this means that every £1 million of loans issued through the platform helped small firms to contribute £2 million to GDP.

600 jobs in 2017.0 billion per annum.5 times in that period. The economic impact of Funding Circle in the UK has grown significantly over the last three years.4 billion gross value in the UK added contribution to UK GDP per annum. 8 .5 billion—four times lending through what it was at the end of 2014. When all impacts are included. FOCUS ON THE UNITED STATES Lending through Funding Circle to small businesses in the United States has also grown rapidly. Its loans under management to small businesses in December 2017 are estimated to have supported a total gross value added contribution to US GDP of $2. its stock of loans under management ($479 million) was 12 times larger than three years earlier. The platform’s loans make a sizable economic contribution in the US. We estimate that. Funding Circle’s loans also have a significant impact on the UK labour market. In December 2017. the annual gross value added contribution to GDP associated with its stock of loans under management was 3.700 jobs were sustained and the activity supported $790 million in annual tax revenues. At December 2017. This activity and employment generated some £730 million in annual UK tax revenues for HM Treasury. its stock of supported by loans under management in the UK was £1. The value of new loans issued increased by 77 percent in 2017. with the jobs associated with these loans having increased by 3. 27. at the end of 2017. enabling an estimated 44. lending through the platform has grown rapidly in the UK. The economic impact of lending through Funding Circle FOCUS ON THE UNITED KINGDOM £2.4 bn Annual gross value added Since Funding Circle issued its very first loan to a small business in August 2010.8 times what it was three years earlier. Funding Circle we estimate these loans supported a £2.

58 percent was generated by the platform’s customers and 21 percent in their supply chains.243 borrowers undertaken in February 2018 show small businesses have the same motivations in taking a loan extended through Funding Circle across all four countries. FOCUS ON THE NETHERLANDS Funding Circle has more loans under management than any other online lending platform in the Netherlands. while 22 percent was associated with the retail and leisure outlets at which all these employees spend their wages. and €20 million in annual tax revenues. Funding Circle’s loans under management at the end of December 2017 supported $2.700 jobs in Germany. 9 . The platform’s lending also sustained some 900 jobs in the Netherlands. in the US Funding Circle’s loans under management at December 2017 are estimated to have enabled some 1. with 900 of these (55 percent) located at Funding Circle’s small business customers. Some €61 million (59 percent) of this contribution platform’s loans was generated by the platform’s small business customers.The economic impact of lending through Funding Circle FOCUS ON GERMANY Lending through the platform is making an increasing contribution to the German economy.0 bn Annual gross value added an annual €103 million gross value added contribution to supported by the German GDP. Of this. Having only started serving German small businesses in 2015. Despite only launching in 2015. according to the survey results. SIMILARITIES ACROSS ALL FOUR COUNTRIES The results of a survey of 1. The simple loan application and the speed of the process were the main reasons firms borrowed from the platform. Funding Circle Netherlands’ loans under management at December 2017 are calculated to have supported an annual total gross value added contribution to the Netherlands’ GDP of €65 million.

Many creditworthy the platform undertakes a small businesses were denied credit assessment. The economic impact of lending through Funding Circle 1. Germany and the In the aftermath of the Netherlands. Enhancing the contributions of SMEs in a global and digitalised economy. of finance. 10 1 OECD.1 They provide 70 percent to lend—exposed the firms wanting to borrow and of jobs and between 50 to 60 dangers of small firms being investors wanting a return. it opens up lending the picture is different across opportunities not previously the four countries this study available to them. 1). under management standing at £1. and and principal they are owed.5 bn most needed it. with the stock of loans for external finance.500 small businesses such as online lending. and funding shortfall when they collects the repayments. At December by innovations in technology. For £1. having issued its small businesses emerged and very first loan in the UK in expanded—often facilitated August 2010. United Kingdom. the fees and commissions they charge small firms relative to The report assesses Borrowed by 25. the 2007/08 enterprises (SMEs) account for financial crisis—which crippled Funding Circle serves as an approximately 99 percent of all banks’ ability and willingness intermediary between small firms. small and medium-sized finance. . and In loans under management in pursued different policies on collects and pays the interest the UK at December 2017 the interest rate spreads. The platform’s financial crisis and global business is at different levels recession. small businesses This study looks at one online to industrialised economies. a number of non. have been heavily dependent lending platform for small According to the OECD. facilitates access to credit or suffered a the loan to the business. This the impact of lending in the UK. Although. of maturity across these four bank sources of finance to economies. For percent of GDP on average dependent on only one source firms seeking external finance. banks seem to have the extension of the loan. on banks for their external businesses: Funding Circle. However. 2017. United States. 2017. This customers had current loans has served to decrease small through Funding Circle in the firms’ dependency on banks UK. across the OECD countries.5 billion—72 percent of the loan portfolio across its four markets (see Fig. facilitates covers. and in four countries: the forced some into liquidation. investors. 25. INTRODUCTION Small firms are very important Historically. has hindered many businesses’ through Funding Circle economic performance.500 customers their larger counterparts.

evidence of small businesses’ employment.The economic impact of lending through Funding Circle The first Funding Circle loan in Each chapter then examines Each chapter also estimates the United States was issued Funding Circle’s loan portfolio the full economic impact in October 2013. may flow from Funding Circle’s Funding Circle issued its first and reviews the average size.000 800 600 400 479 200 67 35 0 UK US Germany The Netherlands Source: Funding Circle 11 .489 1. and asks For each country. By December in each particular country. and the Netherlands—and any reports the results of a other economy the platform customer survey undertaken • impact from the payment of wages supported enters in future. • economic activity generated at the borrower company by the loan. added contribution to GDP. Fig. operate and their location.200 1.243 by the loan. a small business. looks consumer economy. loans issued in 2017. small business loans: loans in Germany and the duration and terms of the Netherlands in November 2015. 1: Funding Circle’s stock of loans under management at December 2017 £ million 1. impact of the financial crisis on at the impact of the loan for bank lending to small business. and reviewing survey Funding Circle loan.400 1. of £479 million loans under in which the platform’s It does so by investigating the management in the US (23 small business customers three types of expenditure that percent of its total portfolio). in February 2018 on 1.600 1. the results contrasting this with the what would have happened are presented across three growth in non-bank forms of had it been unable to obtain a metrics: the gross value finance. and tax receipts perceptions about the credit generated. the platform had a stock investigates the industries Funding Circle in that country. It of the lending extended by 2017. conditions they face. It borrower’s supply chain. which are borrowers’ motivations for subsequently spent in the Each chapter looks at the using Funding Circle. Analysis of the impact of The analysis investigates why Funding Circle in the UK and Funding Circle’s customers • economic activity the US may offer insights into how use the platform to obtain loan stimulates along the it will develop in Germany loans in each country.

Survey evidence than at the start of the period suggests customers are (Fig. Bank of England data time (Fig.6 percent at the end of Various forms of non-bank loans to non-financial 2017 (Fig. small and medium sized enterprises are those businesses with annual debit account turnover on the main business account less than £25 million. small businesses with data showing the gradual disadvantage small firms in have not benefitted from the recovery of the value of the amount they lend and the recovery of bank credit. . but as the majority relates to banks we use the term ‘bank loans’ for simplicity.3). as per the Bank of England definition. this value has compared with a net decline 2017 increased by 77 percent. UNITED KINGDOM Mainstream finance has not 2. and for large firms of just eight following growth of 57 percent now stands 11 percent lower percent. in 2016. 3). The economic impact of lending through Funding Circle 2. The stock of activity across all sectors and non-financial businesses loans held by SMEs was still regions of the UK. made a gradual recovery.1 SMALL BUSINESSES’ ACCESS TO FINANCE served small businesses in the UK well in recent years. value of SME loans over that meet small businesses’ needs. are stepping in to recovered since mid-2015. proportion of outstanding mid-2015 has concentrated on bank loans held by SMEs fell large businesses. It relates to lending by all ‘monetary financial institutions’. Since then. This equates to finance.2 attracted to the platform by its fast and simple application process (see Section 2. The value of declined by 18 percent 16 percent lower in December new loans extended to small between April 2011 and June 2017 than in April 2011. The dataset starts in April 2011. Fig. 12 3 For these purposes. 4)3 – far below the Funding Circle’s loans to small show the value of banks’ equivalent 13 percent rise for businesses support economic outstanding loans to all UK large businesses. the stock of bank to 35. After a deep and prolonged from 38. 2: Outstanding bank loans to non-financial businesses £ billion 525 500 475 450 425 400 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Source: Bank of England 2 Bank of England.2 percent in June 2015 decline. The outstanding bank loans since interest rates they charge. firms through Funding Circle in 2015. Banks continue to However. 2). including lending businesses has gradually a one percent increase in the platforms. Money and credit – December 2017.

The economic impact of lending through Funding Circle Fig. 4: Outstanding bank loans to small businesses £ billion 200 195 190 185 180 175 170 165 160 155 150 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Source: Bank of England 13 . 3: Small businesses’ share of outstanding bank loans to non-financial businesses Percent of total 40 39 38 37 36 35 34 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Source: Bank of England Fig.

With that in mind. due businesses—a measure of credit increasing.500 1. 5 British Business Bank. was extended by banks published 2017. making it cheaper for businesses to borrow. .500 2011Q2 2012Q2 2013Q2 2014Q2 2015Q2 2016Q2 2017Q2 Source: Bank of England Part of the story here is that net At the same time. negative consequences for the creation of new jobs. The economic impact of lending through Funding Circle Fig. the number of SMEs identified in the British Business by the Bank of England— grew by 28 percent4. 5). 5: Net lending by the banks to small businesses £ million per quarter 1. size and location – 2017.000 -2. Between 2011 and to structural problems. businesses and those wishing 2014. 1 November 2017. and their Bank’s 2016/17 report.500 -2. Small business finance markets 2016/17.000 500 0 -500 -1. 14 6 A positive balance indicates a fall in spreads. the size Evidence of gaps in the lending by the banks to small of the SME sector has been market for loan finance. over the same period.5 This was negative for a long time turnover and employment pointed to high loan rejection following the financial crisis. rose by 17 and 10 percent rates both among younger small only turning positive in late respectively. Fig.000 -1. UK business: activity. These flows then turned it is likely their demand for to scale up — with constraints negative again towards the end external finance will have risen on the latter having potentially of 2017 (Fig. 6: Trend in interest rate spreads on loans: small versus large businesses6 Percentage balance of respondents 60 Loans to small businesses 50 Loans to large corporates 40 30 20 10 0 -10 -20 -30 -40 -50 2011 2012 2013 2014 2015 2016 2017 Source: Bank of England Credit Conditions Survey 4 ONS.

The The Bank of England’s Credit Department for Business.7 7 Bank of England. as firms seeking funding who measured by the differential specifically sought a loan with key benchmark interest through an online platform— rates (Fig. the proportion firms which rely on banks for seeking a bank loan fell from external finance have not seen 48 percent to 39 percent. interest rate “spreads” they carried out in mid-2016. The surveys are carried out in mid-year and the question covers finance sought over the previous 12 months. As a result. shows charge large businesses a rise in the proportion of over the past five years. However. Energy & Industrial Strategy (BEIS). small businesses have an annual turnover of under £1 million. . 8 Department for Business. small same period. and earlier surveys in the 15 same series.8 Over the constant. The survey covers bank and building society lenders. Longitudinal Small Business Survey 2016. 7: Type of loan sought by SME employers Percentage of SMEs seeking any kind of external finance in past 12 months 50 12 Bank or building society loan (left scale) Platform loan (right scale) 48 10 48 48 46 8 6 44 6 5 43 42 4 40 2 1 1 39 38 0 2012 2013 2014 2015 2016 Source: BEIS Small Business Surveys Banks have chosen to treat Small businesses are small firms differently in the increasingly looking to lending interest rates they charge. SME employers have between one and 249 employees. platforms for their loans. with medium-sized corporates between £1 million and £25 million. up from one to five percent banks have chosen to keep when compared with a the interest spreads they similar survey carried out charge small firms broadly in 2014 (Fig. Here. Q4 2017.The economic impact of lending through Funding Circle Fig. Conditions Survey suggests Energy & Industrial Strategy’s banks have reduced the survey of SME employers. 6). 7). Credit conditions survey. the same reduction in their borrowing costs that large firms have enjoyed.

8: Outcome of SME employers’ funding applications in 201610 Obtained all finance sought Obtained some Obtained none Leasing / HP 92 4 3 Family etc loan 87 9 4 Credit card 73 16 11 Platform loan 71 11 18 Factoring 71 10 19 Mortgage 70 11 20 All funding types 66 15 19 Bank overdraft 64 16 21 Bank etc loan 59 12 29 Other finance 55 26 20 Equity finance 48 14 38 Govt. This of firms applying for funding suggests that small businesses of any type. ‘don’t know’ and ‘refuse to answer’. The raw results were ‘all’ 47%. For bank lending they were ‘all’ 54%. and ‘refuse to answer’ 5%. and ‘refuse to answer’ negligible. and ‘refused to answer’ negligible. ‘some’ 11%. ‘don’t know’ 5%. ‘pending’ 0%. ‘none’ 17%. ‘don’t know’ 29%. ‘don’t know’ 4%. ‘none’ 12%. and 59 percent of are finding it easier to access those seeking a bank loan. 81 funding they sought (Fig. The economic impact of lending through Funding Circle The same survey also shows When widened to include SME that 71 percent of SME employers who had received employers seeking a platform all or some of the funding loan over the 12 months to sought. and This compares with 66 percent 71 percent (bank loans). grant 36 44 20 0 20 40 60 80 100 Percentage of applications where outcome is known and reported Source: Oxford Economics interpolation of BEIS Small Business Survey 2016 9 The results cited here have been adjusted by Oxford Economics to exclude ‘pending’. ‘some’ 7%. 8).9 percent (any funding). ‘don’t know’ and ‘refuse to answer’ options. ‘some’ 14%. ‘none’ 27%. ‘pending’ 4%. The raw results for all 16 finance types were ‘all’ 60%. Fig. ‘pending’ 3%. 10 Excludes ‘pending’. the funds they need from lending platforms. the results were 82 mid-2016 received all of the percent (platform loans). .

with an upward adjustment by Oxford Economics to allow for non-members.11 Consequently.The economic impact of lending through Funding Circle Fig. with Oxford Economics adjustment for non-P2PFA members that have originated more than £1 billion The flow of new loans through lending platforms is growing at a remarkable pace. the flow of lending through platforms in 2017 was up more than 25 percent on the previous year. more than 75 percent higher than in 2015. Take-up of new platform loans reached £737 million in the final quarter of 2017 (Fig. 11 Based on P2PFA quarterly data on new lending to businesses by its members. 9). The estimate is also made on the basis that the vast majority of platform loans to business are made to SMEs rather than larger firms. 9: Value of new platform loans to businesses £ million per quarter 800 700 737 600 640 618 577 589 500 445 454 400 416 434 370 300 297 305 200 203 213 100 0 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 Source: P2PFA. and over three times the volume seen at the end of 2014. 17 .

18 . Michaela in 2013 by Michaela Pontiki. since then. while researching another Arapina shop. kitchen and soft furnishings for the front of Now this Mediterranean bakery employs 12 house—enabling the bakery to offer a much members of staff. came across an advert for Funding Circle on social media. serving up some 2. and catered parties and events. the business took out a loan through Funding Circle in May began with a single product—the “classic 2017. Michaela credits the loan with helping to kickstart Arapina’s growth. Founded straightforward application process.500 wider menu of vegan and “free-from” savouries. and for a complete refit—and.” But her ambitions don’t open her own shop and production unit. she sought the funding locations for an additional market stall. Having stop there—Lady M is now looking into new located a new premises. healthy-lifestyle Attracted by its ease of communication and bakery based in south-east London. in 2017 Michaela—known the equipment. different financing options. wholesale and catering arms. Together with Arapina’s own funds. The economic impact of lending through Funding Circle CASE STUDY: ARAPINA Arapina is an award-winning. weekend stall at Greenwich Market. “Without treats growing fast. this chocolate” Arapina cake—which proved highly was used to purchase new equipment for the popular in food markets around London. the With demand for Arapina’s “guilt-free” business’s turnover has doubled. both in person and through in Deptford and through delicatessens. a its online shop.” she observes. meals and cakes a week via its own bakery cakes and treats. “you don’t universally as “Lady M”—decided it was time to have legs to walk.

The economic impact of lending through Funding Circle 2. 10).000 Loans under management loans through Funding Circle. By end 2017.0 In 2017. Oxford Economics 19 . 10: Lending through Funding Circle to UK businesses: businesses in the UK continue ‘stock’ measures to increase at a significant £ billion pace.5 billion.000 UK businesses had taken just under 43.1 billion (Fig. 1.4 loans each. 3. 0.5 helped by growth of 43 percent in 2017 alone. following growth of 77 percent in that year and 57 percent in 2016 (Fig.200 1.5 at the end of 2014. the flow of Funding 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 Circle’s new UK lending Source: Funding Circle reached £1. 0. at £1.2 billion. at close to £3. At the end of 2017.000 800 600 652 598 400 415 399 332 200 0 2015 2016 2017 Source: Funding Circle.5 an average of 1.0 some 32. Net lending— Fig.400 reach almost £600 million. 11: Lending through Funding Circle to UK businesses: the difference between ‘flow’ measures new lending and capital £ million per annum repayments made during the year—grew by 50 percent.0 cumulative lending since the firm’s inception was six-and- a-half times the value reached 2. to 1.0 value of business loans under management was nearly five Cumulative lending times higher. 1.2 FUNDING CIRCLE’S UK LENDING PROFILE Funding Circle’s loans to small Fig.156 1. 11). New lending Net lending 1. The total 2.

9 percent.12 engineering 17% Professional & Funding Circle investors 4% business support lend to small businesses in Retail some of the industries that 4% IT & telecommunications are predicted to grow most Leisure & hospitality 5% 12% rapidly (Fig. followed industry of borrower. 14).8 Finance percent per annum over the 9% Education & training 12% 10 years to 2025. At the 2017Q1 2017Q2 2017Q3 2017Q4 end of 2017. This 350 356 marked the second successive 300 quarter in which net lending 296 to SMEs through the platform 250 exceeded that of the entire UK 200 banking system. Healthcare Oxford Economics’ Global 6% Wholesale Industry Model forecasts the IT and telecommunications Transport & logistics sector will grow its 8% 12% Automotive contribution to UK GDP by 3. net lending through Funding 150 173 156 Circle in 2017 stood at £598 145 100 124 million for the year as a whole. Oxford Economics Other 20 12 These figures relate to outstanding loans excluding those in default. by Funding Circle and UK banks fell into negative UK banks territory at the end of 2017. 100 compared to £677 million by 50 all UK-resident banks. £ million per quarter net lending originated by 400 Funding Circle remained Funding Circle UK banks strongly positive (Fig. 12). . 0 Funding Circle’s loans are -50 -75 spread broadly across the -100 small business sector. For example. end-December 2017 by manufacturing and engineering. and Manufacturing & retail (all at 12 percent). The economic impact of lending through Funding Circle While net lending to SMEs by Fig. 13: Loans under management by Funding Circle by industry (17 percent). Funding Circle of loans under management was held by companies in the construction and property Fig. the largest share Source: P2PFA. This is well Consumer services ahead of the forecast for the Arts & entertainment UK’s overall annual growth rate of 1. professional and Percentage of outstanding loan value Property & construction business support services. 12: Recent net lending to SMEs. As a result. Agriculture Source: Funding Circle.

30 November 2017. 15: Loans made to UK businesses by 2017. from cities such as Glasgow to rural counties such as Cornwall. and Number of loans the North East of England. 500+ and Yorkshire and the Humber is 26. 14 UK Finance. This includes areas where disposable income is below the UK average. Oxford Economics 13 Department for Business. North East. 21 . & Industrial Strategy. 14: Projected annual GDP growth by industry.9 Engineering 2. 3 April 2018.0 Whole economy 1.3 Professional & business services 3.14 Source: Funding Circle.13 There is a slight skew towards the 301-400 North of England: the share 401-500 of Funding Circle’s customers in the North West.2 Construction 1. Energy. and London.1 Retail & wholesale 2. UK lending by postcode sector – Q3 2017. 15).1 Information & communication 3.8 Hotels & catering 2. as well as Northern Ireland. 2015-2025 Real estate 2. Business population estimates for the UK and regions 2017. the North West. Yorkshire and the Humber. 1-50 51-100 The distribution of Funding Circle’s customers across the 101-200 UK is broadly in line with the 201-300 location of all SMEs. 17 and six percent higher than these regions’ share of the number of SMEs. Funding Circle’s loans under management at the end of 2017 were more heavily concentrated in the South East.The economic impact of lending through Funding Circle Fig.9 0 1 2 3 4 Source: Oxford Economics Percentage per annum Funding Circle’s loans are Fig. Wales. Compared to the regional bank lending data to SMEs.3 Other manufacturing 1. by local also spread right around the authority district United Kingdom (see Fig.

percent of the sample had responding believed the two explanations stand approached a bank for a loan decision would have taken out as the key reasons for prior to applying to Funding too long or involved too much borrowing from Funding Circle (below the 20 percent hassle (Fig. 17). These factors proved almost 39 percent that the process had three times as popular as the taken too long. Among the lengthy processes. would have been rejected.3 WHY DO SMALL BUSINESSES USE FUNDING CIRCLE? Customers appreciate Customers are put off Amongst those businesses Funding Circle’s fast and borrowing from banks by who had not approached a simple process. Nine percent Circle: the simplicity of the of customers surveyed in June thought the bank would have loan application process (cited 2016). Fifteen bank first. while by 28 percent). August 2016. The economic impact of lending through Funding Circle 2. 16: Main reason for borrowing from Funding Circle Simple loan application 28 Fast process 26 Competitive interest rate 9 Good customer service 8 Better terms 7 Mistrust of banks 5 Rejected for a loan by banks 5 Only option for an unsecured loan 5 Sense of community 3 Lower fees 2 Other 1 0 5 10 15 20 25 30 Source: Funding Circle survey Percentage of the total sample 22 15 Cebr. 16). fees were too high (Fig. Small business. big impact: The changing face of business finance.15 Of these firms. . evidence from Funding Circle. Fig. and 15 percent next most important reason that the bank’s rates and/or (Fig. 18). 74 percent of those 522 UK customers surveyed. application had been rejected. 44 been too expensive. and the speed percent said their bank loan eight percent believed they of that process (26 percent).

18 This question was asked of the 80 firms who had approached a bank first. all of whom responded. out of the whole sample of 522. Fig. while none of our The strength of Funding a bank first were also asked for respondents thought Funding Circle’s offer means that 89 their views on the relative speed Circle would have been slower. funding in the future. 18: Reasons for not approaching a loan application16 bank first17 Percentage of responses Percentage of responses 3% The decision would 3% have taken too long/ Application 7% too much hassle 15% rejected by bank 8% Thought it would be Bank took too expensive 44% 9% too long Thought I would Bank's rates and be rejected 39% fees were too high 74% Didn't know how to approach a bank for Other the finance I needed Source: Funding Circle survey Source: Funding Circle survey Other The firms who had approached (Fig. The percentages here relate to the 75 non-blank responses. . A total of 92 Some 23 percent believed the surveyed would approach the percent believed the Funding Funding Circle process would lending platform first should Circle process would have been have been at least one month their business require external faster than the bank alternative faster than the bank alternative.The economic impact of lending through Funding Circle Fig. percent of the customers of the process. out of the 23 whole sample of 522 The percentages here relate to the 424 non-blank responses. 17: Reasons for not completing a bank Fig. 19). 19: Perception of Funding Circle process time versus an alternative18 Percentage of responses 80 70 70 60 50 40 30 20 18 10 5 8 0 0 0 0 Greater than 1-3 months Less than 1 Same time/ Less than 1 1-3 months Greater than 3 months faster faster month faster Don’t know month slower slower 3 months slower Source: Funding Circle survey 16 This question was asked of 80 firms who said they had applied for a bank loan before turning to Funding Circle. 17 This question was asked of 442 firms who said they had not applied for a bank loan before approaching Funding Circle.

20). Some 22 percent said they would have used a expected that their business bank loan. 59 percent (Fig. 20: Likelihood of obtaining funds in Funding Circle’s absence finance in Funding Circle’s absence. but negative Percentage of total sample consequences were feared by those who could not.19 This suggests 28% the vast majority of Funding Circle’s customers in 2018 can source external finance from a range of providers. missed opportunity. said the failure to borrow and six percent a bank would have resulted in a overdraft (Fig. seven pointed to a negative impact percent a loan from a family on profits. eight percent believed it was unlikely or very unlikely that Very unlikely they would have obtained 38% the funds required (Fig. minority of firms who believed that they could not have Amongst those firms obtained the funds elsewhere. 20 percent another would have failed. big impact. . evidence from Funding Circle. expecting to obtain funding 98 percent pointed to negative from somewhere else in those impacts of one kind or another circumstances. 22). August 2016. amongst the attractive than the alternatives. 37 percent online lending platform. 24 19 Cebr. The economic impact of lending through Funding Circle Most customers could obtain Fig. 25% Unlikely This is a significantly smaller Don't know proportion than the 21 percent who thought they would be Likely unable to secure external funding in the absence of Very likely Funding Circle in the June 2016 survey. Small business. while 26 percent member or business associate. and Source: Funding Circle survey are therefore choosing the platform as its offer is more However. 21). The changing face of business finance. 4% 4% If Funding Circle did not exist.

21 and all ticked at least one. Firms could tick more than one option. 21: Alternative funds to be used in Funding Circle’s absence20 Bank loan 59 Other platform lender 20 Family/associate loan 7 Bank overdraft 6 Credit card/credit line 2 Government loan/grant 2 Factoring/invoice discounting 2 Equity finance 1 Merchant cash advance 0 Other 1 0 10 20 30 40 50 60 Source: Funding Circle survey Percentage of responses Fig.The economic impact of lending through Funding Circle Fig. 25 . 337 responded. 22: Perception of impact of not receiving funding21 No impact 2 Business failure 22 Impact on profits 37 Impact on investment 30 Impact on jobs 26 Missed opportunity 26 No debt consolidation 9 Other impact 2 0 10 20 30 40 Source: Funding Circle survey Percentage of responses 20 Asked of 343 firms expecting to have received the funds elsewhere. Additional options ticked are excluded in the case of firms citing ‘business failure’. Asked of the 46 firms expecting not to have obtained finance in Funding Circle’s absence.

23). to all those holding Funding goods and services in 2017. are estimated to have Circle directly supports £1. the total annual revenues of Fig. rather than at the ‘market’ price paid by the purchaser.200 jobs. Circle loans at the end of 2017. sustained a £0.0 20 inputs of goods and services £0.200 people Source: Oxford Economics were employed at Funding Circle’s customers.7 billion 25 covers the annual cost of 1. This activity payments. employers’ national insurance and business rates paid by the firm. excluding loans in default. including those taxes. and 25.2 economic activity).24 22 This is based on loans under management as at 31 December 2017. thousands accounts. 23: Funding Circle’s total contribution to the UK economy these UK-based borrowers per annum (2017) amounted to £23. wage income that is ultimately payment of wages.3 the “Funding Circle share” of Direct 35 this revenue is £1.4 WHAT IS FUNDING CIRCLE’S FULL ECONOMIC IMPACT IN THE UK? The Funding Circle survey’s However. loan book.0 0.300 jobs.4 Of this £1. Funding Circle are estimated impact would have supported to have supported £0. income tax and national insurance paid by its employees. we can say that 11. The only 26 difference is that gross value added is valued at the ‘basic’ price received by the producer.5 £2. and represents the 0. for 2.7 billion purchased from other firms. and net profits.4 5 costs.100 jobs and £0. Funding Circle’s This expenditure is likely to respondents were also total economic contribution have sustained £0. and £0. plus dependent on Funding those by firms in their supply Lending through Funding Circle’s share of its borrowers’ chain. includes two further channels gross value added per annum employment. . 23 This gross value added measure of production is similar to the well-known gross domestic product measure (GDP).2 15 1. and VAT and duties targeting final consumers of the firms’ products. on average.7 billion some 11.5 10 0.9 billion. The economic impact of lending through Funding Circle 2. The 25.23 Some 25.7 billion gross billion per annum of gross value added contribution to value added. producing this output and generating £0.5 billion.2 billion is the sum 0. purchases from of impact: the indirect along the small businesses’ other firms.1 billion of on Funding Circle’s total services from other firms). These results were in UK supply chains due to would have generated some used. The loans to SMEs managed by GDP per annum. This induced in the UK.2 remaining £1. £0. and tax channel (activity supported UK supply chain.4 billion of annual tax revenues. imports.2 0.2 Scaling up from the survey of purchases of inputs of billion of yearly tax revenues. capital costs.22 As a Funding Circle loan £ billion per annum Headcount.5 8. and annual tax revenue.7 Indirect 40 these firms.4 billion 50 eight percent of all debt and Induced 44. excluding taxes on sales such as VAT.600 jobs 45 equity finance supporting 2. to work out the the induced channel (other platform’s impact on the wider UK activity funded out of Funding Circle’s customers’ UK economy.9 billion.0 0 firms’ direct gross value added Gross value added Tax Jobs (left scale) (left scale) (right scale) contribution to UK GDP (Fig. along with information the purchases of goods and 8. 1.4 billion in asked about their revenues. taxes on the firms’ purchases from other firms (such as road fuel duty and ‘green’ levies). 24 The taxes included are corporation tax.1 of these firms’ employment 0.1 30 0.

virtually double the End-2014 Mid-2016 End-2017 amounts seen then—with jobs Source: Oxford Economics impacts up by 89 percent in that time.4 these are new jobs created as small firms expand. 24: Approximate gross value added supported in the year together.3 value added impacts were 98 percent higher than in mid.4 billion to GDP of £2.5 saved by the business activity 0. therefore.5 0. but which had been repaid (or defaulted on) by that date. others 0. which included effects relating to all loans made by the platform since its inception in 2010.4 In 2017. thousands time. with its gross value added impact doubling in the 50 44. 25: Approximate number of jobs enabled at three points Funding Circle’s impact has in time grown substantially over Headcount.51. comparable 27 to those set out in the 2016 report on Funding Circle’s impact.600 jobs the stock of loans under 20 6. Induced We estimate that.1 times those associated with 23.5 £2. 25).6 the loan enabled.2 billion 1.600 jobs £1. Some of 1. 44.25 Direct 1. with the jobs impacts 4.3 4. The estimates are not. 5.e.The economic impact of lending through Funding Circle Taking all three channels Fig.2 £0.5 times higher (see Fig. It End-2014 Mid-2016 End-2017 is also calculated to have Source: Oxford Economics generated £730 million in annual UK tax revenues. and associated ongoing jobs impact.3 of 2017.600 jobs past 18 months. No impact is attributable to Funding Circle loans made in the past. These annual 13.2 billion depended on lending through Funding Circle. .0 employed in Darlington.7 added produced in Rugby or Indirect Chesterfield in a year.0 management three years earlier.0 0.5 0 2016—i. at the end 40 11.2 10 and Fig.800 25.0 0.4 billion in 2017—equivalent to all the value Induced 2.2 are existing jobs that are 0. 25 These amounts reflect the ongoing annual GDP and tax impacts. Fig.3 roughly the number of people 0. namely 31 December 2017. This is 0.2 jobs 9. lending through prior to three points in time Funding Circle can be said £ billion per annum to have supported an annual gross value added contribution 2.8 30 8. supported by the amount of Funding Circle loans under management at a single point in time. 24 1. the direct and total Indirect annual gross value added Direct impacts were around 4.

improve the back of the shop. the company then required additional finance for its fit-out. completing instore branding. he had the funds that allowed his company to a lifelong motorbike enthusiast. recession in 2008-09. increasing Teasdale’s its instore branding. based in North Yorkshire. Founded in 2003 by Andy Walker. He then decided to apply for a loan one of the largest dealerships in the North of from Funding Circle—within a matter of days. he Circle platform. By moving to the new its shop footprint.” to include clothing. premises. which has grown both online and instore. He says: “Funding approximately 650 motorcycles annually across Circle is great. and adding an extension. he says. which over time have enabled received a third loan to add an extension to the company to launch a new website. and has expanded its product range dealing with a faceless bank. . Andy and has seen its revenues triple. At the time. it’s a little bit more personal than the UK. According to Andy. But the story had been approaching banks for finance to doesn’t end there: in the near future. this loan was of customers each year. The company sells crucial to Teasdale’s growth. After purchasing a new premises. hire more staff and expand footprint by two-thirds. the company was able The first loan came at the height of the to add a new manufacturer to its franchise list. accessories and repair services. England. as the banks were putting up many is a one-stop motorcycle shop that has become obstacles. plans to open a second shop. the company buy and adapt a spare parts website.CASE STUDY: TEASDALE MOTORCYCLES Teasdale Motorcycles. and now also resulted in the recruitment of an additional employs 18 staff members who serve thousands team member. Andy has purchase a website—an exhausting process. A couple of years later. Teasdale’s development has been supported so Andy applied for a second loan through by three loans accessed through the Funding Funding Circle.

.

2010 = 100 Data from the Federal Deposit Insurance Corporation (FDIC) 180 show that the value of banks’ All domestic C&I loans to U. The value of 110 what the US Small Business 100 Administration (SBA) refers to as “small-business loans”27 90 (defined to be less than $1 million in value) has only 80 increased by 11 percent over 2010 2011 2012 2013 2014 2015 2016 2017 the same period (Fig. banks’ the United States small business lending has $ billion grown far less rapidly than their loans to larger firms in 1.600 suggests many small firms continue to face significant 1. its stock 600 of loans under management 400 in December 2017 was 12 times what it had been three 200 years earlier. 26: Value of outstanding bank loans to C&I customers in In the United States. smaller firms have 120 not shared in this resurgence in bank lending. In 2017.800 recent years. employment.400 difficulties obtaining external finance.200 financing shortfalls. 1. This chapter estimates the full impact of 0 Funding Circle loans under 2010 2011 2012 2013 2014 2015 2016 2017 management in December Source: FDIC 2017 on US GDP. 27). UNITED STATES Fig. addressees 170 loans to commercial and C&I loans < $1 million industrial (C&I) customers has 160 climbed steadily in nominal C&I loans < $100. Source: FDIC 26 FDIC Quarterly Banking Profile. it 150 stood 68 percent higher than 140 its level seven years earlier (Fig. Loans to Small Businesses and Small Farms 30 27 The SBA refers to loans greater than $1 million as ‘large-business loans’. 3. The economic impact of lending through Funding Circle 3. and tax receipts.26 130 However. Bank lending to C&I customers in the US.1 SMALL BUSINESSES’ Fig.000 Against this backdrop. 800 Funding Circle has grown very rapidly in the US.000 terms since 2010. 27. . and frequently face 1. Survey evidence 1.S. 26). split by size ACCESS TO FINANCE of loan Index.

the share of The Senior Loan Officer’s However. The spreads banks of small businesses have with a principal of less than charge on loans over their cost experienced challenges in $100.The economic impact of lending through Funding Circle As a result. 31 . Fig. survey evidence requirements or fees) also businesses. banks seem to 5 have loosened their standards in the aftermath of the financial 0 crisis. Large and medium Small Tighten Rather. or other terms.000). “paying operating expenses”.29 does not suggest banks are appear to have been similar changing their policies in across firms of different sizes. The policy. Senior Loan Officer’s Opinion Survey question on The Federal Reserve’s Senior whether banks have tightened credit standards to different- Loan Officer’s Survey does not sized firms in the US find that banks have changed Net balance the credit standards they apply to small versus medium and 15 larger C&I firms since 2010. decreased from 30 percent in banks’ interest rate charging According to the Federal 2010 to 20 percent in 2017. -15 -20 -25 2010 2011 2012 2013 2014 2015 2016 2017 Source: Federal Reserve 28 Small firms are defined here as those with annual sales of less than $50 million. “making payments on debt”. different ways for small versus medium and large companies. “purchasing inventory or supplies to fulfil contracts”. 44 percent smallest loan category (loans 2010. This was in other terms required by the most common financial Unlike in the UK and the banks (such as collateral challenge faced by small Netherlands.28 Changes funds for expansion. small businesses small-business loans in the Survey also suggests there still report considerable total stock of C&I lending has has not been much change in difficulties securing finance. 28) — although this is not to say standards were -10 Loosen equal across all firms at the start of the period. towards Reserve’s 2016 Small Business same is broadly true of the different-sized C&I firms since Credit Survey. whose share has of funds have fallen broadly the prior 12 months regarding decreased from 13 percent in equally for both large and credit availability or securing 2010 to 9 percent in 2017. 29 Other financial challenges listed in the survey were. 28. small businesses. before tightening them slightly in the three years to -5 2016 (Fig. regardless of the size 10 of the C&I firm.

trade associations30 in 2017. reported receiving a smaller loan than they had applied for. and 17 percent financing shortfall. by firm revenue size Percent 60 Received all finance applied for Received some Received none 55 50 40 40 38 36 30 33 31 29 20 24 14 10 0 All firms Less than $1 million More than $1 million in revenue in revenue Source: Small Business Credit Survey 2016 30 Electronic Transactions Association. 30)31. 29). the Marketplace Lending Association. Fig. as non-bank alternatives and marketplace lenders. The economic impact of lending through Funding Circle Some 42 percent of US Small businesses therefore Evidence from the Small small businesses report look to a range of financing Business Credit Survey their applications for a options to meet their needs. This figure was 67 percent for those firms which earned less than $1 million in revenue. of firms with between five and of “successful” applicants 499 employees. such as online lending was The average rejection rate for found a large majority (70 particularly popular among all small business applicants percent) of these owners the smallest businesses. Applying to for counterparts applying for commissioned by four US sources of non-bank funding an auto or equipment loan. of credit options. Some across all loan types is 24 believed there are more credit 29 percent of firms with zero percent (Fig. Even small businesses whose 97 percent regarded the compared to 23 percent of finance applications are expanding range of financing firms with between one and successful often still face a options as a positive thing for four employees. and the Small Business Finance Association. options available today than employees applied to an online five years ago. published by the Federal Reserve Banks of Cleveland and Richmond. . 32 31 ‘Online lenders’ are defined in the Small Business Credit Survey. Innovative Lending Platform Association. Additionally. indicates small businesses are business loan were rejected A comprehensive survey of making use of this wider range — compared to 21 percent US small business owners. Sixty percent their business. lender in 2016 (Fig. 29: Outcome of small businesses’ finance applications.

30: Credit sources applied to by employment size of firm. published by the Federal Reserve Banks of Cleveland and Richmond. 31: Value of new loans issued through Funding Circle increased significantly over $ million the course of 2017. 31). 275 281 200 100 59 0 2014 2015 2016 2017 Source: Funding Circle. A total of $509 million new loans were 600 issued in 2017. multiple response 60 Non-employer firms Small employer firms Larger employer firms 50 49 50 48 45 44 40 37 30 29 20 23 17 17 10 14 9 7 7 4 0 Large bank Small bank Online lender Credit union CDFI Source: Small Business Credit Survey 2016 3. are financial institutions that 33 provide credit and financial services to underserved markets and populations. . Larger employer firms are defined as those with between 5 and 499 employees.2 FUNDING CIRCLE’S US LENDING PROFILE Funding Circle’s loan issuance Fig. Small employer firms are defined as those with between 1 and 4 employees. an increase of 80 percent from the $281 500 509 million issued the previous year (Fig. CDFIs. or community development financial institutions. This also 400 represents a nine-fold increase in the value of new loans 300 compared to 2014. Oxford Economics 32 Taken from the 2016 Small Business Credit Survey: Report on Microbusinesses.The economic impact of lending through Funding Circle Fig. 201632 Percent of those applying for credit.

Oxford Economics 34 . Percentage of all loans Source: Funding Circle. waste By value of its loans under 5 & remediation management at the end Wholesale 5 of 2017. small firms in the professional. Construction 10 Funding Circle originates Other services 9 loans to small businesses across a wide and diverse Hospitality 8 range of industrial sectors.. Administrative. Retail 14 however. Oxford Economics The businesses that borrowed Fig. 32). a few concentrated Health care & 11 areas for Funding Circle loans. based on technical services 17 the distribution of loans by ZIP code (Fig. 33: Funding Circle’s 10 largest customer sectors by value through Funding Circle in of loans under management in December 2017 2017 are widely spread across Prof. followed by the retail sector 0 5 10 15 20 (14 percent) (Fig. scientific. There are. The economic impact of lending through Funding Circle Fig. scientific and Manufacturing 4 technical service sector had received the largest amount of Information 3 credit (17 percent of the total). & the United States. 32: Loans issued through Funding Circle by 2017. social assistance such as Los Angeles and Miami. 33). by ZIP code Number of loans 0 1-5 6-10 11-20 21-30 31-40 41-50 51-100 101-150 Source: Funding Circle.

cited by over — followed by the simplicity three-quarters of customers of the application. we explain its through Funding Circle. business customers in the US the application process. 35: Reasons for not requesting a loan from the bank33 burdensome. was a perception that the process would be too Fig.The economic impact of lending through Funding Circle 3. loan. the a bank loan before applying to key findings. cited by 19 who did not request a bank percent of customers (Fig. 4% 4% The decision would have taken 6% too long/too much hassle Thought I would be rejected 9% Didn't know how to approach a bank for the financing I needed 76% Thought it would be too expensive Other Source: Funding Circle survey 33 This question was only asked to the businesses who did not attempt to get a bank loan before applying to Funding Circle (268 respondents out of the total sample of 382). 35). most common response. 382 Customers value the There is increased appetite of Funding Circle’s small speed and simplicity of for using lending platforms. 34). cited Funding Circle for their most by 30 percent of customers. 34: Main reason for borrowing from Funding Circle Percentage of responses 30 30 25 20 19 15 10 13 9 5 7 7 7 2 2 4 0 0 s io n s nk a ic r ra ve lo for er es ks ity f un o rv e es m at a ba for se tom th an fe n s e te an st iti ic lo m se er oc rm n O re et fb te tio er pl le m en rt by ed pr s te p ap mp w cu te to co S a op in om an ct st Lo et lo je Si us d Fa y C B oo e nl tr R O is G Source: Funding Circle survey M As part of this project. recent loan. 35 . 70 insights into their experiences. important reason for borrowing percent did not attempt to get In this section.3 WHY DO SMALL BUSINESSES USE FUNDING CIRCLE? Fig. The main driver was the speed of the process of this decision. A further nine percent thought they would Percentage of total sample be rejected (Fig. Of all the small business completed a survey to gain When asked about the most customers surveyed.

37: Perception of Funding Circle application time relative to other providers35 Percentage of responses 70 60 64 50 40 30 20 18 10 11 3 0 0 4 0 Greater than 1-3 months Less than 1 Same time/ Less than 1 1-3 months Greater than 3 months faster faster month faster Don’t know month slower slower 3 months slower Source: Funding Circle survey 34 This question was only asked to the businesses who did attempt to get a bank loan before applying to Funding Circle (114 respondents out of the total sample of 382). 50 Percentage of responses percent said their application was rejected. Fig. Bank took too long Of those businesses that 50% Other considered non-bank financing 36% Bank's rates and fees were options. some 85 percent too high of respondents felt the application process would be quicker through Funding Circle (Fig. . while 7% seven percent felt the bank’s rates and fees were too high Application rejected by bank (Fig. 36: Reasons for not receiving requested bank financing34 first approached a bank. 36 35 This question was only asked to the businesses who did attempt to get a bank loan before applying to Funding Circle (114 respondents out of the total sample of 382). Some 21 percent thought the process would be Source: Funding Circle survey at least one month faster. 36). The economic impact of lending through Funding Circle Of the businesses that had Fig. A further 36 percent responded that the 7% process took too long. 37).

businesses percent of respondents. therefore. 40 42 35 If Funding Circle did not exist. the most that they would have been common response. 39: Perception of the impact of not receiving funding Missed opportunity 27 No debt consolidation 22 No profit growth 16 My business would have failed 11 Weaker profit growth 8 No investment made 5 Lower investment made 3 No job creation 3 Lower job creation 3 Job losses 3 No impact 0 0 5 10 15 20 25 30 Source: Funding Circle survey Percentage of responses 37 . Fig. A further 22 percent believed they would Asked about the impact of not be able to consolidate their not receiving funding through debt. 20 Only seven percent felt it was 15 unlikely or very unlikely that they wouldn’t have been able 10 to obtain the required funds. while 16 percent thought Funding Circle. was felt they would have missed that they would have missed an an opportunity. 5 2 choosing Funding Circle rather 0 than feeling constrained by a Very likely Likely Don't know Unlikely Very unlikely lack of choice. 39). opportunity (Fig.The economic impact of lending through Funding Circle Businesses are confident Fig. but 45 still chose Funding Circle and would do again. 38: Likelihood of obtaining funds in Funding Circle’s absence about the availability of non- Percentage of responses bank sources of finance. Source: Funding Circle survey Without funding. 5 These businesses are. given by 27 unable to achieve profit growth. 38). 42 percent of respondents 30 believed it was very likely they 25 would have obtained funds 26 26 from other sources (Fig.

Circle stimulate economic supported $170 million in purchases from other activity through their annual tax revenues (Fig.0 billion output. Source: Oxford Economics 38 36 Taxes include corporation taxes. By scaling up the survey activity at retail. This economic were also asked about their receive loans through Funding activity and employment revenues.500 tax revenues. 310 14. some 4. output.700 jobs 30 To produce this economic $2. On average.700 jobs. business customers’ liabilities. and in these Aggregating the impact Funding Circle loans at the companies’ supply chains.0 billion in Funding Circle loans comprise contribution to GDP of $490 2017. across all three expenditure end of 2017. $ million per annum Headcount. goods and services from other additional $760 million gross firms. This was associated nine percent of all its US small million in 2017. firms in their supply chain. and business customers and the employment also supported 14. Funding Circle to small firms made a $790 million gross Fig. $790 million per annum of payment of wages by small The additional output and US gross value added.300 jobs.800 jobs and paid $310 million of annual 760 Direct 20 1.000 8.3 generated some 14.600 jobs were and generated $790 million in We estimate lending through supported along the SMEs’ annual tax revenues. 40: Funding Circle’s total contribution to the US economy value added contribution to US in 2017 GDP in 2017.000 490 $790 million When we also account for the 10 indirect and induced impacts. $310 million in annual tax This stimulates economic revenues. personal taxes and taxes on production . The indirect impact Small businesses’ payment was used in combination with of this lending relates to the of wages connected with Funding Circle’s loan book to activity supported in US supply their loans obtained through determine its impact on the chains.0 procurement that sustained value added contribution billion per annum.36 4. To make this with a total of 27. the small businesses Indirect 25 2.6 15 1. This Funding Circle’s loans in the relates to economic activity induced economic output US have directly supported generated in the US from the generated 8.500 Induced 27.0 billion of annual Gross value added Tax Employment gross value added and enabled (left scale) (left scale) (right scale) 27. due to the purchases of Funding Circle created an wider US economy. leisure and results to all businesses holding other outlets.700 jobs in the US in 2017. Funding Circle’s value added contribution to Funding Circle’s loans to small loans to small businesses in US GDP of these borrowers businesses in the US supports the US supported a total gross was calculated to be $13. employment. an annual gross value added to US GDP of $2. the total gross channels. businesses. thousands 2. 40).4 WHAT IS FUNDING CIRCLE’S FULL ECONOMIC IMPACT IN THE US? The small businesses surveyed The small businesses that supply chain. This information wages.8 500 5 lending through Funding Circle 790 170 is found to have supported a 310 0 0 total of $2. The induced impact value added in 2017. The economic impact of lending through Funding Circle 3.800 jobs. imports and tax procurement and payment of payments.

They received the become the youngest person to eat the world’s money in a matter of days. North Carolina. allowing them hottest chilli pepper. Released from such frustrations. and the pair have big plans: in the next two or enhance the packaging of its products. homemade sauce to widespread acclaim. not only to launch the two products. aimed at the its products. 39 . the company the resources necessary to help us grow the has grown to sell a range of hot sauces business. as Elijah’s Xtreme looked to create commercial kitchen—and greater control over a grilling glaze for game meat. they found a contract packager who was able to “The biggest challenge for us has been finding replicate the recipe. national and online outlets— frustration is banks’ inability to understand with financing secured through Funding Circle their need to pay upfront for the manufacture proving instrumental in allowing the company of the sauces. after distributing samples of their new spicy BBQ sauce as well. One sells gourmet hot sauces based on recipes major US retailer was so impressed with the that Bret Morey and his son Elijah dreamt up samples that it asked to stock both products— at home in Gaston County. After long had a mutual love of chilli peppers and receiving a letter from Funding Circle. Bret hot sauces—when he was six. they hope to take over one of the co-packers used to manufacture and bottle A crux moment came after a couple of years of the sauces. but to meet this order. and a hot sauce gift box. three years. Elijah’s Xtreme would using chilis grown in their garden. but to purchase a large order of square bottles for a In 2013. to develop new sauces. Since then. Elijah wanted to applied online for a loan. The pair have have to pay the co-packer up front.” Bret explains. giving Elijah’s Xtreme access to a expansion.The economic impact of lending through Funding Circle CASE STUDY: ELIJAH’S XTREME GOURMET SAUCES Elijah’s Xtreme Gourmet Sauces makes and hunting market. purchase bottles. adding that a common through local.

This chapter looks percent in real terms after firms report taking up a new at the full economic impact adjusting for the CPI measure or renewed bank loan—3 of lending through Funding of German inflation. other than the 40 Bundesbank. employment. Oxford Economics. The first survey covered the six months to June 2009. years. of this wider picture of its first loan there in November financial crisis. this implies the credit yet the economic output of outstanding loans that conditions facing enterprises of of non-financial firms’ has German banks issued to non.1 SMALL BUSINESSES’ ACCESS TO FINANCE financial crisis. enterprises (SAFE) suggests are still in their infancy in following the prolonged period small businesses in Germany Germany. Federal Statistical Office. January 2008 to December 2017 € billion 1. 39 and tax receipts.38 However. but the third covered the six months to September 2010. 16 percent of small year before. The non-financial corporation borrowers in this series could be located anywhere in the Euro Area in principle. 2015. ‘Bank lending’ here includes all loans by German monetary financial institutions. Its stock of loans under only three percent higher in In the latest survey. Since then. 2015 survey. it has been undertaken every six months. It remains to a recovery in business grew by more than 15 percent eight percent lower in real lending over the last three between late 2008 and late terms than at the end of 2008. but are likely to be predominantly German.37 nine percent higher at the The ECB’s survey on end of 2017 than three years the access to finance of Non-bank sources of finance earlier (Fig. 38 ECB Statistical Data Warehouse. 41). increased by 15 percent over financial corporations some the same time period. German bank lending to non-financial Data from the European As the real GDP of the German corporations only started to Central Bank (ECB) point non-financial business sector recover in 2015. all sizes are much tighter today.000 Actual amount CPI-adjusted terms 980 960 940 920 900 880 860 840 820 800 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: ECB. 37 Federal Statistical Office data on real gross value added by economic sector. percentage points lower than Circle in December 2017 on in the six months to March German GDP. but growing very of decline and stagnation in have clearly felt the impact rapidly. covering management in 2017 was money terms than at the end the six months to September three times the size of the of 2008—or down by eight 2017. Fig. . 39 European Central Bank. the second the six months to December 2009. Funding Circle issued business borrowing post. The economic impact of lending through Funding Circle 4. 41: Outstanding bank loans to non-financial businesses. Survey on the Access to Finance of Enterprises. November 2017. GERMANY In the wake of the global 4. this value is still constrained business lending. with the total stock 2017.

42: Trend in bank finance costs other than interest costs40 Percentage balance 35 30 25 20 15 10 5 0 Jun-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Source: ECB The proportion of small As mentioned above.The economic impact of lending through Funding Circle Fig. they had this category of funding. and real estate crowdfunding. since late 90 94 2011.41 non-bank options in Germany. 10 17 over the year to September 0 2017. In 2016. fees or commissions—a trend that 30 36 dates back to the first surveys 20 in 2009 (Fig. more firms experienced a rise in charges. 43: Online non-bank business finance market volumes. Furthermore. equity- based crowdfunding. Source: Cambridge Centre for Alternative Finance 40 A positive balance indicates that. debt-based securities. the Despite its small size. such as charges. 2018. 41 Where relevant in the SAFE questionnaire is defined as “have you used them in the past or considered using them in the future”. balance sheet business lending. the bank loan option was “not national market in Europe for relevant” (namely. greater in 2016 than three But the proportion for which making it the fourth largest years earlier (Fig. with the value of to their business was broadly million of funds were made debt. equity and other funding unchanged. at 32 percent available to businesses by raised more than five times (versus 31 percent in 2015). € million 100 The same survey points to a continual decline. 81 70 But it also shows a continual 60 increase in bank financing 50 costs other than interest 40 costs. profit sharing. them in the future) rose from 2013 to 2016 30 percent to 51 percent.42 not used them in the past and were not considering using Fig. 41 42 Cambridge Centre for Alternative Finance. . the businesses stating they did not market for online non-bank market has experienced take up a bank loan despite forms of finance in Germany is strong growth over the past that option being “relevant” still in its infancy. Expanding Horizons: The 3rd European Alternative Finance Industry Report. 43). 42). Where Business finance is defined as P2P business lending. these fees rose at a higher 2013 2014 2015 2016 pace than previously recorded. in the previous six months. in the interest rates paid 80 by small firms to their banks. fees and/or commissions than a decline. €94 four years.

6 percent of small businesses of credit. crowdfunding. subordinated debt instruments. Of firms who the proportion of firms who reported using “other” forms applied for “other” sources of received only some of the of financing. 44: Types of finance used by SMEs. tenth of the number who said 45).4 16 1. in the ECB survey—one all of the funding sought (Fig. including online financing. Other financing here includes peer-to-peer lending. percent for firms applying Fig. grants and issuance of equity and debt securities. only applied for non-bank sources across the funding types. subordinated debt instruments.2 14 1. In September 2017. participating loans. varied considerably. This is higher than the 80 they used bank loans (Fig. 87 percent received funding they had applied for lending.9 10 0.8 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Source: ECB The newness of the availability However.1 1. loans from a related company. grants and issuance of equity and debt securities. ‘don’t know’ and ‘refuse to answer’ options.5 18 1. and of non-bank forms of financing found that small firms were the 78 percent for firms who in Germany is mirrored in the more likely to receive all applied for a bank loan. factoring.8 1. 2014Q4 to 2017Q343 Percentage of SMEs Bank loan (left axis) Other financing (right axis) Percentage of SMEs 22 1. 44). . the survey also for any type of finance.0 12 0. crowdfunding. participating loans. While borrowing habits of its small of the funding when they rejection rates were consistent firms. loans from a related company. leasing. 45: Outcome of SMEs’ funding applications in 201744 Obtained all Obtained most Obtained part Obtained limited Rejected Bank loan 78 6 9 3 3 Bank overdraft/credit 86 3 6 3 3 Trade credit 69 11 15 4 Other financing 87 3 5 2 3 0 20 40 60 80 100 Source: ECB Percentage of SMEs who applied for finance 43 Other financing here includes peer-to-peer lending. leasing. factoring. The economic impact of lending through Funding Circle Fig. 42 44 The results cited here have been adjusted by Oxford Economics to exclude ‘pending’. shareholders or family and friends. shareholders or family and friends.7 20 1.3 1.6 1. 1.

Funding Circle’s German activities have grown Fig.The economic impact of lending through Funding Circle 4. 46: New loans issued through Funding Circle. the largest share Arts & entertainment of loans under management (23 Real estate percent) goes to construction Education firms. 2016-2017 Many Funding Circle loans go Number of loans € millions to businesses in high-growth industries.3 percent between 2015 Source: Funding Circle and 2025. Source: Funding Circle € millions 43 . The 685 new industry of borrower Number loans issued in 2017 was 170 percent higher than the 0 50 100 150 200 250 300 previous year. By value. Other services Hospitality Funding Circle originates Rental and leasing loans to companies in almost Financial services every industry in the German economy. accounting for 25 percent of the total (Fig.5 percent. The amount of money loaned has Manufacturing grown at an even faster rate: Professional services the value of new loans issued Info & communication in 2017 totalled €55 million. By number.2 FUNDING CIRCLE’S GERMAN LENDING PROFILE Fig. against the whole economy average of 1. Comparing the 800 Number (left axis) Value (right axis) 60 industries that Funding Circle 700 55 loans are supplied to with the 50 685 nearest corresponding sectors 600 40 in Oxford Economics’ Global 500 Industry Model. 46). IT and 100 communication is predicted 0 0 to grow at an annual rate of 2016 2017 3. the Health Number of loans (top axis) largest share of loans under Utilities & power Value of loans (bottom axis) management are with firms in Agriculture & extraction retail and wholesale. 47: Loans under management to Funding Circle by substantially. four out of the 400 30 top five industries by share of loans under management 300 are forecast to grow more 20 200 251 rapidly than the economy as 18 10 a whole. the first full year Retail & wholesale of Funding Circle operations Construction in Germany (Fig. Administrative services 47). reflecting the higher average value of the loans taken 0 5 10 15 20 out by firms in this industry. In particular. Transport & storage three times larger than the amount issued in 2016.

3 WHY DO SMALL BUSINESSES USE FUNDING CIRCLE? To understand what motivated Customers value the speed loan application procedure businesses to take out loans and simplicity of the was their main reason for through Funding Circle. . The economic impact of lending through Funding Circle Funding Circle’s customers Fig. 49). 21-50 50+ Source: Funding Circle. 48: Funding Circle loans made by 2017. customers surveyed reported survey’s key findings. In 2017. loans were 0 made to companies located 1-4 in 56 percent of the country’s districts (Fig. by geography are also based across the Number of loans length and breadth of Germany. we explain the process ranked second. application and judgement German Funding Circle In this section.45 The largest 5-10 number of loans were made 11-20 to small firms located in Berlin and Hamburg. 48). Oxford Economics 4. The speed of the Forty-nine percent of the Germany as part of this project. 44 45 Districts defined as NUTS level 3. some application process. borrowing through the 140 customers were surveyed in platform. attracting 29 percent of that the simplicity of the respondents (Fig.

the vast majority—some 86 percent of firms reported a bank loan. while 61 percent or hassle involved in applying. Some had first attempted to secure Circle. 50: How the speed of Funding Circle’s loan applications compared with other providers Percentage of responses 60 57 50 40 30 20 26 10 3 12 0 1 1 0 Greater than 1-3 months Less than 1 Same time/ Less than 1 1-3 months Greater than 3 months faster faster month faster Don’t know month slower slower 3 months slower Source: Funding Circle survey 45 . was not completed because or expense.The economic impact of lending through Funding Circle Fig. at least a month faster. 49: Reasons businesses borrow through Funding Circle Percentage of responses 60 50 49 40 30 29 20 10 4 4 4 2 6 1 0 Simple loan Fast Rejected Good Only option Mistrust Sense of Other application process for a loan customer for a of banks community by banks service term loan Source: Funding Circle survey Many customers are put off Focusing on why the Borrowers’ belief that applying bank lending by the time and remaining 71 percent of firms for online lending is faster hassle. Just 29 percent of did not seek a bank loan than a bank loan is supported Funding Circle’s customers before approaching Funding by their experience. 50). was faster compared to other reported that their bank loan rather than the risk of rejection providers considered (Fig. Some 29 percent of firms the process took too long or reported that the process was because it was too expensive. 31 90 percent— reported that that the process of securing percent were rejected by they were put off by the time a loan through Funding Circle the bank. Fig. Of these.

the lending platform for an average of six percent of conjunction with Funding had almost 1. 51). and affected. was management in Germany. first. not received their loan for borrowers. Circle’s total loan book. A further 29 This suggests they are opting through Funding Circle. while 32 percent for other types of finance.4 WHAT IS FUNDING CIRCLE’S FULL ECONOMIC IMPACT IN GERMANY? As part of the survey. and 900 jobs. used to estimate its total impact totalling more than €65 on the German economy. for its simple and fast would have been adversely or no. profit growth. percent and 13 percent said to approach Funding Circle many felt their prospects they would have had weaker. most small loan application process.077 loans under the companies’ total liabilities. Analysis of the survey inputs of goods and services. for employments. example. Some 51 percent businesses said that if they other aspects of its offer. they would have applied Customers fear reduced (Fig. investment and missed thought they would have A large share of firms (64 opportunities. million per annum to German acting as working capital. million. missed an opportunity—again percent) viewed it as “likely” highlighting the importance or “very likely” that they would Had the small businesses of speed of access to finance have received other financing. taken in 2017. These supported the 46 . procurement of GDP. The economic impact of lending through Funding Circle Nonetheless. Funding Funding Circle directly activities of the borrowers Circle customers were asked contributes an estimated €61 by funding investment or for details of their revenues. 51: Perceived impact had a business not received its required financing No investment made 51 Missed opportunity 32 Weaker profit growth 29 No profit growth 13 No impact 10 No debt consolidation 9 No job creation 6 Job losses 5 Lower job creation 4 Business would have failed 1 Other 1 0 10 20 30 40 50 60 Source: Funding Circle survey Percentage of responses 4. Fig. of borrowers revealed that imports and tax payments. of firms said they would not were unable to use Funding undertake an investment Circle. At the end of December Funding Circle’s loans account This information.

2017 on goods and services. 52: Funding Circle’s total contribution to the German via small businesses’ spending economy. who in turn spend 40 600 a portion of their income in 61 900 Germany’s consumer economy. impact of Funding Circle’s Circle’s direct contribution to 400 jobs. This revenues in 2017. 120 1. jobs and €4.5 million in taxes. indirect to estimate the share of this indirect impact generated a and induced impacts together contribution supported by its €21 million annual gross value gives us the total annual loans.2 400 20 10. Taking Funding Circle’s generates activity along the 1.6 0 Gross value added Tax Employment (left scale) (left scale) (right scale) Source: Oxford Economics 47 . and € millions Headcount their payment of wages. Lending through Funding Circle also supports activity Fig. and generated €24 directly supported some 900 both at retail and leisure outlets million in annual tax revenues. sustained platform’s lending in Germany million in gross value added. under management at the end The payment of wages by of December 2017. Funding Circle Funding Circle for finance supported €26 million of supported a €103 million generated an estimated €991 procurement spending from gross value added million gross value added German suppliers in 2017.5 200 9. and enabled in 2017. The 80 1.000 payment of wages by Funding 60 Circle’s customers. to their staff. 24. 52).700 jobs.200 wage-financed consumption 400 (“induced”) impact reflects the 21 1. it is possible chains.700 jobs. Funding Circle’s Adding the direct. annual GDP was almost €61 annual tax revenues.1 million in loans on the German economy. share of these companies’ length of German supply total liabilities. activity supported 400 jobs and €10.1 0 4.700 1.6 million in tax and in their supply chains.400 goods and services from Germany-based suppliers.800 Induced The supply chain (“indirect”) 103 1. these loans This “direct” economic activity Funding Circle’s customers supported a gross value added also sustains employment and and the firms in their supply contribution of €103 million to generates tax revenues: the chains sustained a further €22 German GDP in 2017. and the 800 firms in their supply chain. Based on the value of its loans million per annum (Fig. 1. contribution to Germany’s contribution to German GDP Mapping how this spending GDP in 2017.The economic impact of lending through Funding Circle The small businesses that use Funding Circle’s loans In total. This means Funding added contribution to GDP.600 impact arises as borrowers Indirect 100 400 spend money on inputs of 22 Direct 1. and €9.

organic cocoa beans imported was likely to be approved. the speed team keep the production of their chocolate in. bank loan would have proved too lengthy for a rural town south of Berlin. the company would have had and store its chocolates — thus helping to to delay the project for a year.CASE STUDY: EDELMOND CHOCOLATIERS Edelmond is a small German company that The application procedure for a traditional makes luxury handmade chocolates in Luckau. within a matter of days. tunnel and boost its production well ahead which now boasts more than a thousand of Christmas. . Either way. by another 6-8 weeks to receive the tunnel — The company typically buys its beans from thus putting Edelmond far behind schedule. at the time the business didn’t have or until its cashflow was large enough to lease sufficient reserves to undertake the investment one. rather than than four months to get a decision. which in turn allowed it to earn customers a year. it would take more directly from the source country. Edelmond decided considerably more revenue over this key period. Funding Circle’s support. instead. the In contrast to a bank loan application. to invest in a refrigeration tunnel that would increase the speed at which it could make Without the loan. without the interference of middle-men or the anonymity of a wholesaler. So single-family farms in the developing world. the company approached Funding Circle. and simplicity of Funding Circle’s application house. this “bean to bar” chocolatier uses year’s Christmas surge. followed purchasing cocoa from an intermediary. In 2017. Although its application Fairtrade. up sufficient reserves to purchase a tunnel — However. the 2017 Christmas period and needed some financial support in order to would have been a lost opportunity without progress with its development plans. Additionally. until it had built meet the festive periods increased demand. Founded seven Edelmond to buy the tunnel in time to meet last years ago. This meant that the business could purchase the refrigeration Christmas is always peak time for the company. giving them full control of their product meant Edelmond received its loan agreement at every step of the process.

.

Fig. Dutch banks’ lending to small financial businesses fell by 16 show a 16 percent decline in businesses in the Netherlands percent (Fig. 48 For these purposes. Funding Circle issued its first April 2011 to December 2017 loan in the Netherlands in November 2015. more between 2013Q3 and 2017Q3 than to larger firms. Key indicators monetary statistics – February 2018. 300 employment.47 The data. 53: Outstanding bank loans to non-financial businesses. the UK. This chapter estimates the full impact of that lending 310 on the Netherlands’ GDP. the value of outstanding loans policies that disadvantage to all non-financial businesses smaller firms—a similar finding over the same period. 50 47 De Nederlandsche Bank. collected since September 2013.48 This is slightly larger banks appearing to have increased lending levels to than the 14 percent decrease in pursued different interest rate these customer types. Less than two € billions years later. the three major based banks’ lending to non. Between April 2011 and pronounced for loans extended and. last updated January 2018.1 SMALL BUSINESSES’ ACCESS TO FINANCE Germany when analysing financing trends in the Data from De Nederlandsche Information collected from Netherlands. to small businesses. THE NETHERLANDS We find a similar story to 5. more recently. with the recently. SMEs are defined as private companies and institutions which are involved in non-financial services or production of goods. Lending by Dutch large banks to the Dutch SME sector. 290 280 270 260 250 2011 2012 2013 2014 2015 2016 2017 Source: DNB 46 De Nederlandsche Bank. banks have (Fig. and tax receipts. December 2017. Netherlands. The data relate to lending by ‘monetary financial institutions’ but the majority will relate to banks. to the UK. . The economic impact of lending through Funding Circle 5. 54). the UK). where lending to Bank shows that bank lending the three major Dutch banks firms by banks has declined to non-financial businesses has indicates that this downward sharply since the financial crisis fallen substantially in recent trend has been more (in contrast to banks in the US years. We use the term ‘bank loans’ for simplicity. it had increased 330 its loans under management to €40 million (at December 320 2017). with a maximum turnover of €50 million. 53) 46—whereas outstanding loans to small firms has decreased more rapidly in the United States and. Furthermore.

The value of new bank loans with a principal of less than €1 million was 29 5.0 25 To put this decline in bank lending to small businesses into 3. over the same time period the number of small 3. In contrast. 55: Value of new business loans. 49 Statistics Netherlands. 55). 2013Q3 to 2017Q3 € billions 150 145 140 135 130 125 120 115 110 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 14 15 16 17 14 15 16 17 13 14 15 16 17 13 14 15 16 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: DNB The gap is more striking when Fig. accessed February 2018 51 . 4. The State of SMEs. The number of firms with 249 2.0 15 businesses in the Netherlands has been increasing. 2011Q1 to 2017Q4 bank loans to business are € billions € billions compared by the size of the Up to €1 million (left axis) 5. Number of companies by company size and legal form.5 10 employees or less grew by 2011 2012 2013 2014 2015 2016 2017 some 29 percent between Source: Eurostat 2011 and 2017 49—suggesting that access to bank credit is now much harder for small businesses than five years ago. the value of new business loans over €1 4. 54: Outstanding bank loans to small firms from the three major Dutch banks.5 More than €1 million (right axis) 40 principal.0 35 percent lower in 2017 than in 2011.5 20 context.The economic impact of lending through Funding Circle Fig.5 30 million was around 2 percent lower (Fig.

51 availability of bank loans The ECB’s Bank Lending In 2016. The economic impact of lending through Funding Circle Fig. it generated around exceeded those reporting Survey shows the cost of €179 million in net new finance increased availability every borrowing for small businesses for firms. shows a similar picture for The market for online lending firms of both sizes. at 15 percent and debt-based Since July 2015.50 The results to the survey from April 2012-July 2014. 56: Change in availability of bank loans or credit facilities for SMEs. the survey securities at eight percent. 2010H1 to 2017H1 Net weighted percentage 20 15 Improved 10 5 0 -5 Deteriorated -10 -15 -20 2010 2011 2012 2013 2014 2015 2016 2017 Source: DNB This is broadly reflected in the There is some evidence that The market for non-bank ECB’s SAFE survey. has grown rapidly: between 2015 and 2016. Where 51 52 business finance is defined as P2P business lending. as business lending accounted question subsequently became measured by the size of banks’ for around 74 percent (or more positive. exceeded only by half year from 2010-2015 (Fig. the 3rd European alternative finance industry report. invoice trading. largest in continental Europe. the volume of lending through online platforms increased by 79 percent. balane sheet business lending. debt-based securities. €132 million). while the spreads banks equity-based crowd funding lending data. followed by with the continuous fall in the 57). Online 56). equity-based crowdfunding. but that conflicts margins on average loans (Fig. . Its data banks in the Netherlands have finance for business in the show the percentage of small pursued different policies in Netherlands is the second firms reporting decreased the interest rates they charged. 50 European Central Bank. Survey on the access to finance of enterprises. charged large enterprises fell. profit sharing. increased every quarter its French counterpart. Expanding horizons. November 2017 Cambridge Centre for Alternative Finance. and real estate crowdfunding. 2018.

5 0 2011 2012 2013 2014 2015 2016 2017 Source: ECB 52 Other financing here includes peer-to-peer lending. has Other financing been increasing. leasing. 25 including online lending. participating loans. 58: Types of loan sought by SMEs in the Netherlands in for non-bank sources of the past six months52 finance among small firms Percentage of SMEs in particular has expanded. Bank loan traditional types of financing. The economic impact of lending through Funding Circle Fig. Almost 16 percent of small firms reported 15 using “other financing” in the first six months of 2017. albeit with large fluctuations in each 20 period (Fig. loans from a related company. 58). grants and issuance of equity and debt securities. factoring. 30 The ECB’s SAFE found the proportion of firms using non. subordinated debt instruments. crowdfunding. compared to around 13 10 percent in the first half of 2011. April 2011-Dec 2017 Net weighted percentages 80 Loans to SMEs Loans to large enterprises Spreads increase 60 40 20 0 -20 Spreads decline -40 -60 -80 -100 2011 2012 2013 2014 2015 2016 2017 Source: DNB There is evidence that demand Fig. 53 . shareholders or family and friends. 57: Trend in banks’ margins on average loans.

The economic impact of lending through Funding Circle

The ECB survey also showed percent of firms who applied
small businesses were more for a bank loan.
likely to receive all of the
funding when they applied The corresponding
for non-traditional types of percentages of small firms
credits. Some 77 percent who obtained at least some
of firms who applied for of the finance applied for
“other financing”, including were 96 percent, 89 percent
online lending, reported they and 85 percent. This suggests
received all that they applied that firms going to non-bank
for in 2017 (Fig. 59). This sources of finance are finding
compares to an average of 62 it easier to access funds than
percent of firms applying for those going to the traditional
any type of finance, and 60 sources of credit.

Fig. 59: Outcome of SMEs’ funding applications in 201753
Obtained all Obtained most Obtained part Obtained limited Rejected

Bank loan 60 11 13 2 15

Bank overdraft/credit 65 4 9 5 18

Trade credit 46 15 22 7 9

Other financing 77 9 10 1 4

0 20 40 60 80 100
Source: ECB Percentage of SMEs who applied for finance

53
The results cited here have been adjusted by Oxford Economics to exclude ‘pending’, ‘don’t know’ and ‘refuse to answer’ options.
Other financing here includes peer-to-peer lending, crowdfunding, participating loans, subordinated debt instruments, loans from
54 a related company, shareholders or family and friends, leasing, factoring, grants and issuance of equity and debt securities.

The economic impact of lending through Funding Circle

5.2 FUNDING CIRCLE’S NETHERLANDS LENDING PROFILE

Lending through Funding Circle Fig. 60: New Funding Circle business loans issued, by year
in the Netherlands, although Number of loans € millions
the smallest of its markets, has
800 40
again been growing rapidly.
More than 750 new loans were 700 Number (left axis) 35
issued in 2017, three times as
600 Value (right axis) 30
many as in 2016 (Fig. 60).
500 25
In value terms, the new loans
400 20
issued in 2017 totalled some
€33.6 million; this was almost 300 15
two-and-a-half times greater
200 10
than in 2016. The average
loan issued in 2017 was for 100 5
a value just under €45,000,
0 0
significantly larger than the 2016 2017
median loan value of €30,000. Source: Funding Circle

The portfolio of new loans €5.2 million, and information The platform’s customers
issued through Funding Circle and communications, which are widely spread across
in 2017 was spread across a received €3.7 million (Fig. 61). the Netherlands, with the
range of industrial sectors. Combined, the businesses in cities of Amsterdam and
The largest value of loans was these three sectors were the Rotterdam having the highest
extended to the construction recipients of just over half of concentration of customers
sector at €7.7 million, followed the value of new loans in 2017. (Fig. 62).
by retail and wholesale at

Fig. 61: Value of new lending through Funding Circle in 2017, by sector
Construction 7.7
Retail & wholesale 5.2
Info & communication 3.7
Professional services 3.4
Transport & storage 2.7
Hospitality 2.0
Manufacturing 2.0
Rental & leasing 1.7
Arts, recreation & other services 1.1
Health 0.9
Agriculture & extraction 0.8
Financial services 0.8
Education 0.5
Real estate 0.1
Administrative services 0.1
0 2 4 6 8
Source: Funding Circle € millions

55

The economic impact of lending through Funding Circle

Fig. 62: Loans issued through Funding Circle, end 2017, by geography
Number of loans
1-9
10-19
20-29
30-39
40-49
50-59

Source: Funding Circle; Oxford Economics

5.3 WHY DO SMALL BUSINESSES USE FUNDING CIRCLE?

To understand what motivated As in the other three markets, for choosing Funding Circle
businesses to take out loans customers value speed and (Fig. 63). The speed of the
through Funding Circle, almost simplicity when applying. application process ranked
200 customers were surveyed Some 37 percent of customers second, chosen by 26 percent
in the Netherlands. This that responded to the survey of customers as their main
section details the survey’s cited simplicity of the loan motivation for opting for
most significant results. application as the main reason Funding Circle.

56

63: The reasons small businesses borrow through Funding Circle Percentage of responses 40 37 30 26 20 17 10 6 2 1 1 1 1 5 4 0 io n s nk a ks lo an ic r es ra ve s ity f er un o rv e es m at a ba for se tom th an fe n s an e te st iti ic lo m se er d r oc re fo O re et fb er pl le m en rt by ed pr s te p cu n ap mp w cu te to co S in om o an ct st Lo se ti et lo eje Si us d Fa un op C B oo tr R y is G nl M O Source: Funding Circle survey Many customers had tried and With regard to those who did failed to get bank loans. not apply for a bank loan first. applying by. Fig. respectively. a larger given—cited by 65 percent of proportion of customers in these firms. the time and hassle involved Compared to Funding Circle’s was the most common reason other markets.The economic impact of lending through Funding Circle Fig. 57 . 64: The main reason Funding Circle borrowers did not request a bank loan54 The decision would have taken too 65 long/too much hassle Thought I would be rejected 16 Thought it would be too expensive 6 Didn't know how to approach a bank for 2 the finance I needed Other 11 0 10 20 30 40 50 60 70 Source: Funding Circle survey Percentage of responses 54 Note: this excludes businesses who did attempt to secure a bank loan before applying to Funding Circle. 16 percent and six percent of firms. market the Netherlands had tried to conditions also play a clear role access finance through more in discouraging businesses in traditional channels before the Netherlands from seeking turning to online lending. external finance: fear of Some 40 percent said they rejection and a belief it would had attempted to secure a be too expensive were given bank loan prior to applying to as the main reasons for not Funding Circle. However.

54 have lost revenue or lowered believed their revenue may percent would have turned investment. reflecting uncertainty 7% 21% surrounding credit conditions 8% Don’t know (Fig. firms would their loan. Some 34 percent responded that they did not Very unlikely know. Without funding. of these. 66). almost a quarter 19 percent to other online customers in the Netherlands— of the businesses surveyed business finance providers. to bank loans. and a further portion of Funding Circle In addition. Likely The survey evidence indicates Funding Circle’s customers 30% Very likely in the Netherlands were not 34% confident about securing external financing from other Unlikely sources. Just 51 percent of firms thought it “likely” or Source: Funding Circle survey “very likely” that they could secure funding through non. The economic impact of lending through Funding Circle Some businesses were Fig. while 16 percent bank sources. A considerable not have grown at all (Fig. 65: Businesses’ expectations of receiving external finance uncertain they could access if Funding Circle did not exist external finance from Percentage of responses elsewhere. Fig. some 41 percent—indicated said that no investment would their revenue growth would have been made had they not have been weaker without received their loan. 66: What would have happened if businesses had not received their required financing? Weaker revenue growth 41 Lower investment made 31 No investment made 23 No revenue growth 16 Lower job creation 9 My business would have failed 7 Job losses 6 No debt consolidation 4 No impact 4 Other 2 0 5 10 15 20 25 30 35 40 45 Source: Funding Circle survey Percentage of responses 58 . 65).

imports and tax Outstanding loans originated from Netherlands-based payments. was used to supported 600 employees in support €17 million in domestic estimate its total impact on a variety of industries across procurement per year. Fig. value added contributions economic impact through the Funding Circle supported a to the country’s GDP. Funding 19. Funding Circle is economy in 201755 estimated to have supported a €65 million gross value € millions Headcount added contribution to the 70 65 Induced 1. 100 jobs. of goods and services. and (left scale) (left scale) (right scale) €20 million in tax revenues Source: Oxford Economics per year. 100 jobs and €5 million companies’ total liabilities consumption) channels.000 Netherlands’ GDP in 2017. This economic activity gross value added contribution Lending through Funding and employment sustained to GDP. This information. and supporting more economic these companies generated payment of wages to staff. Funding 60 14 Indirect 100 800 Circle’s total economic impact 50 Direct in the Netherlands is the sum of 13 100 40 600 these three channels of impact. and 600 jobs.The economic impact of lending through Funding Circle 5. per annum to GDP in the Funding Circle’s borrowers. an estimated €38 million tax revenues. Through its outstanding loans 30 400 at the end of 2017. in tax revenues annually. and €5 million Circle directly contributes around €11 million in annual in taxes per annum.9 600 20 38 Circle supported an annual total 4. in the Netherlands. as they have been rounded to the nearest 100 people. 59 . 67: Funding Circle’s total contribution to the Netherlands’ In total. and Netherlands. employment and taxes.6 0 0 €65 million (Fig. the direct The indirect channel captures Circle customers were asked gross value added contribution the economic activity for details of their revenues. in through Funding Circle are suppliers. 55 The three channels employment numbers do not sum to 900 in the chart.7 4. the platform stop with the activity of its wages. In 2017. The loans also help spend a portion of their wages loans with more than 992 SMEs to fund spending on inputs in the Netherlands’ economy. Using “indirect” (supply chain) and further €14 million gross value Funding Circle’s share of the “induced” (wage-financed added.4 WHAT IS FUNDING CIRCLE’S FULL ECONOMIC IMPACT IN THE NETHERLANDS? As part of the survey. these employees had €40 million in outstanding customers. attributable to Funding Circle stimulated by the small employments. Lending through conjunction with the platform’s estimated to have directly Funding Circle is estimated to total loan book. some €589 million in gross spending generates further Through this induced channel. But Funding Circle’s impact companies in their domestic in the Netherlands does not supply chains. This output. pay their staff At the end of 2017. It further Gross value added Tax Employment sustained some 900 jobs. 67).6 200 gross value added contribution 10 to the Netherlands’ GDP of 10. This the Netherlands economy. and 900 enabled 900 jobs. the Netherlands’ economy in spending sustained a €13 million 2017. In turn. business borrowers’ spending of inputs of goods and on inputs of goods and services services. procurement was €38 million per annum. Funding (around six percent).

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prompting Luc to comment: “There are real people behind it. Luc was able to negotiate a better price and save on shipping costs. Fairtrade- certified lights in Europe. South America and Australia. a problem arose when the supplier said it required 30 percent of the payment on placement of the order. But beyond the financial terms of the loan. This meant Luc would need to pre-finance the purchase of stock fully five months before his firm was likely to recoup any money from its sale to customers. and the favourable interest rates compared with traditional sources of finance. Within days. boosting his profit margins.CASE STUDY: COTTON BALL LIGHTS Netherlands-based Cotton Ball Lights sells handmade. However. or creating their own unique products. with the remaining 70 percent due when the stock arrived in Rotterdam. By purchasing in bulk. Cotton Ball Lights was sent a list of every person who had invested in the business. which is nice to see.” . Two years ago. Luc compared a large range of credit suppliers before choosing to apply for a loan through Funding Circle. he had the funds in his account which enabled him to purchase a large quantity of lightboxes in one order (setting up a sister-company. he particularly appreciated the human aspect of Funding Circle. the company has grown from just five employees to more than 80 staff based in the Netherlands and Thailand. When asked about the benefits of Funding Circle. LEDR. Founded almost eight years ago. in the process). founder Luc Clement was keen to extend his company’s offering to include lightboxes sourced from China. Luc praises the speed with which the company was able to secure finance. The company produces 10 million cotton ball lights a year that are sold in 16 countries—with customers having the choice of buying pre-designed strings of balls.

Funding Circle’s they lend. as well as financing shortfalls This report has sought to for those small firms whose quantify the full economic applications are accepted. banks have treated larger Funding Circle. Online lending receipts.9 billion.000 jobs. and the terms and outstanding loans to small conditions they impose. CONCLUSION Almost a decade after However. impact of loans extended to Lending data and credit small businesses through one condition surveys suggest such online lending platform. These loans are hold. and some many industrialised countries. favourably in the volumes In total. to their traditional dependence £1. in the four corporate customers more countries in which it operates. offering also found to have supported struggling to access credit in small businesses an alternative over 75. point to relatively high bank is at the forefront of this trend. loan rejection rates for SMEs. technology and value added contribution to Lehman Brothers collapsed other factors have triggered GDP across the four markets and the financial crisis took growth in a number of other of £3. small firms are still providers of credit. The economic impact of lending through Funding Circle 6. supported an annual gross 62 .3 billion in annual tax Business surveys repeatedly on bank loans. since businesses at December 2017 2007/08.

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The economic impact of lending through Funding Circle APPENDIX 1 ESTIMATING THE ECONOMIC IMPACTS Survey respondents in each of The industrial sector was The gross value added and the four countries were asked used to split each firm’s value employment impacts for the about their company’s latest added between employment sample were then scaled up. as being within the various ranges recommended by The “Funding Circle share” of experts in the field. equivalent to book. to the share company’s Funding Circle loan supported by Funding Circle’s value. adjusted taxes paid were scaled up in early 2018. using a balance-sheet-to. as adjusted to capture loan to its estimated balance only loans under management sheet size was then used to and not in default at the end scale down from total direct of 2017.e. annual revenue. The ratio its record in the entire loan of each firm’s Funding Circle book. Estimates for business taken to be the difference balance sheet (i. to-income and tax-to-spending The gross operating surplus ratios derived from national The direct gross value added was then used to estimate accounts and tax authority of these respondents was the size of each company’s data. and industrial sector. to financing. the share of surplus” (i. were removed to be more specific to smaller in the same way. Direct tax from the dataset for these firms by taking into account contributions of all kinds were purposes. This ratio was chosen to be compatible. Revenues. and found was taken straight from the three. plus net profits. business tax total derived from while their direct employment gross-earnings multiple of the survey answers. purchases costs and the “gross operating to arrive at impacts for the from other firms. be identified. using various tax- loans at December 2017. value added. its net value taxes within this overall set between revenues and plus all outstanding liabilities). capital costs entire Funding Circle loan imports in those purchases. survey answers. This enabled the value and jobs. and depreciation in company survey firms’ outstanding Respondents who had repaid accounts). based on the ratio of and business tax payments.e. or who took out a loan national accounts. leaving only those relevant ratios from national worked out from direct gross respondents with outstanding statistical agencies’ data. although it those values then had to be is towards the lower end of the calculated. earnings before tax. and business Circle. 64 . This required loans. were then checked against the purchases from other firms. interest all outstanding loans to the as well as employment levels. Each company in scale to reflect the small size the sample was matched with of the firms involved. purchases their loan through Funding sector-by-sector data from the from other firms.

impact models. of mining and energy firms. in an input-output table. and found to be very similar. share of imports in that total was checked against the share indicated by the survey results. direct employment costs of wide procurement found Funding Circle’s borrowers in the official “input-output were also fed in. and tax-to-spending Funding Circle borrowers’ total ratios. so do was reasonably similar to that based on the entire pattern not show the economic impact of the wider business sector. impacts were then calculated was therefore adjusted to within the model. of transactions between of Funding Circle since its except for the relative absence industrial sectors. employment and tax versus-imported supplier split. incorporates the latest gross and mining and energy firms. contribution supported by pattern of firms by industrial excluding imports. which also exclude non-business entities. across the entire loan book. 65 . The by-industry basis. the indirect and induced The pattern of procurement The results show the economic impacts were worked out. added. which are They are not cumulative. on a refined industry- purchases from other firms. The from domestic suppliers. by type of product and induced gross value purchased and domestic. tax-to- and applied to the estimate of income. was the lending through Funding sector. both in the sample and then fed into economic Circle’s platform per annum. as found creation.The economic impact of lending through Funding Circle Next. The indirect table”. The The pattern of economy. value added-to-jobs.

expert panels. employ over 300 full-time people. Dubai. otherwise stated and cited in footnotes. over 100 industrial sectors and without its prior written permission. regional centres in London. and Singapore. and think tanks. We London. key government bodies and trade associations. and top universities. 66 . Any subsequent revision or update of those data will affect the Headquartered in Oxford.500 international organisations. Paris. Oxford Economics is a key adviser to corporate. Oxford Economics has Oxford Economics offices across the globe in Belfast. New York. consultancies. upon which Oxford Economics has and assess their economic. except where and financial institutions expanding abroad. UK more than 200 professional economists. analysts and journalists around the world. including leading multinational companies and financial institutions. Our worldwide client base now comprises over 1. Philadelphia. Miami. Our best-of- class global economic and industry models The modelling and results presented here and analytical tools give us an unparalleled are based on information provided by third ability to forecast external market trends parties. with assessments and projections shown. we have become one of the are copyright © Oxford Economics Ltd. Broadwall House. from econometric modelling. world’s foremost independent global advisory firms. 4. and web analytics.000 cities and locations. Our global team is highly skilled in a full range of research techniques and thought leadership capabilities. The economic impact of lending through Funding Circle OXFORD ECONOMICS Oxford Economics was founded in 1981 as a June 2018 commercial venture with Oxford University’s business college to provide economic All data shown in tables and charts are forecasting and modelling to UK companies Oxford Economics’ own data. including SE1 9PL. Milan. financial and government decision-makers and thought leaders. and Washington DC. and Since then. scenario framing. providing reports. England. Underpinning our in-house expertise is a contributor network of over 500 economists. and economic impact analysis to market surveys. forecasts This report is confidential to Funding Circle and analytical tools on more than 200 and may not be published or distributed countries. case studies. in good faith. Chicago. San Francisco. social and relied in producing its report and forecasts business impact. Tel: +44 203 910 8000 industry experts and business editors—one of the largest teams of macroeconomists and thought leadership specialists. 21 Broadwall.

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