New way for ordinary people to invest in small business

In a move that defies the banking system, the British people have decided to fund viable small businesses throughout the country.  Within 10 weeks of its origin, the social lending site Funding Circle @ is a declared success.

Funding Circle’s purpose is to finance small business directly at rates more affordable than currently offered by the banking community.

More than thirty businesses have taken on loans from Funding Circle, including a t-shirt printer from London and a water treatment business in Scotland. The average interest rate charged by Funding Circle is right around 8 per cent, which is considerably lower than the current bank rate of 12 per cent.

The average size of a loan is £30K. Lender/investors range in age from 18 to 80.

Borrowers can obtain a loan of £5,000 to £50,000 that are for a duration of one to three years.  The loans are repaid via monthly instalments.  The money is sourced from many different investors who compete in order to provide the borrower the best possible rates.

The lenders set their own interest rates and the borrowers accept the lowest rate.  To date, investors have earned an average of just above 8 per cent on their investments, which is considerably higher than letting the money sit in a regular or savings account.

Borrowers are thoroughly researched by experienced underwriters, just like at a bank.  Only proven credit worthy businesses are allowed to participate in the process.  Borrowers are then divided into risk groups so investor/lenders know exactly what they are taking on in funding any particular business. With the middleman cut out, both investor and borrower do better than they would with any bank.