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JUNE 2018
The economic impact of lending through Funding Circle


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

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

6. Conclusion62

Appendix 164

JUNE 2018 3
The economic impact of lending through Funding Circle

Small businesses are the unsung heroes of our Within this report, it’s particularly rewarding
economy. They’re the ones who’ve taken a risk to see the enormous economic impact that
and worked hard to realise their ambitions. At is stimulated as a result of lending through
Funding Circle, their work inspires us, and we’ve Funding Circle. When a business accesses
made it our mission to help small businesses finance through our platform, a ripple effect is
across the world go even further. seen through supply chains further boosting
local communities. In 2017 alone, this activity
Our business was founded in direct response unlocked 75,000 jobs across our four markets,
to the 2008 financial crisis, when banks pulled many of which were created as a direct result
back from lending. There are over 150 million of the loan or would have ceased to exist
small businesses in the world, all of which without the funding.
are driving much-needed job creation and
productivity across their local economies. From butchers and bakers, to IT consultants
Despite this valuable output, they continue to and accountants, these are the businesses that
struggle with an unfair and broken financial are made to do more, creating jobs and driving
system. This report, which is our first global the economy forward. Supporting them is a
impact study, reveals the extent to which mission that continues to inspire us; we help
banks have retreated and how online lending them as they change the world.
platforms are stepping in to fill the gap.

Over the years, 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. Today, the
vast majority of lending still comes from banks,
however they struggle to support this part of
the market. Bank branch closures are also on the
rise, including over 2,000 in the US last year, and Samir Desai
half of German branches since the year 2000. CEO and co-founder of Funding Circle

To a certain extent, this is inevitable in an internet

age. Technology has led to the emergence
of online lending, 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. By
combining proprietary risk models and cutting-
edge technology with advanced data analytics,
these platforms have made deep pools of capital
available to them for the first time. This powerful
combination also allows us to expand the
market and help more small businesses; 16% of
businesses tell us they wouldn’t have been able
to access finance without us.

The economic impact of lending through Funding Circle


£3.9 bn
Annual gross value
In the decade since the financial crisis in 2007/08, small
businesses have continued to have difficulties in obtaining
bank loans in industrialised countries, despite wide-ranging
measures to improve access to finance for this demographic.
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.
four markets The stock of bank loans to small firms is growing less rapidly
in 2017. than for larger corporates, and in some countries, the decrease
in interest rates has not been passed on to small firms to the
same extent as to larger businesses. Banks have also operated
different policies on the fees and commissions they charge.
This has, and continues to, disadvantage small businesses and
hinder their vital contribution to the global economy, reducing
innovation, competition and the number of jobs created.



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. Online lending is
at the forefront of these non-traditional options.

Funding Circle is the leading small business loans platform in the

United Kingdom, United States, Germany and the Netherlands.
By connecting supply directly with demand, a wide range of
investors are able to lend directly to small businesses. This
allows creditworthy firms to receive a loan to grow and expand
in days rather than months.

In the UK, where Funding Circle has been established the

longest, 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. 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, rather than going to a bank.

The economic impact of lending through Funding Circle

This report investigates the impact of the loans extended

through Funding Circle on economic activity in each of the
four countries it operates in. As well as establishing its full
contribution to GDP, jobs and tax revenues, 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. Jobs enabled by
lending through
Funding Circle

In total, Funding Circle’s loans under management to small

businesses at December 2017 supported an additional
£3.9 billion annual gross value added contribution to Gross
Domestic Product (GDP) across the four markets. In practical
terms, this means that every £1 million of loans issued through
the platform helped small firms to contribute £2 million to GDP.

Across the four countries, Funding Circle’s loans were found

to enable over 75,000 jobs at the end of 2017. Some 41,500
(55 percent of the total) were directly employed at the small
businesses that took out loans through the platform, and the
remaining jobs were sustained indirectly through supply chains
or by employees’ wage-financed spending.

The activity and employment supported by Funding Circle’s

loans also generates significant tax revenues for local and
central governments in the four countries. The total loans
under management at December 2017 are estimated to have
supported £1.3 billion in annual tax receipts. Some 45 percent
of the taxes supported were generated by Funding Circle’s
customers, with the remaining 20 and 35 percent, respectively,
generated in the small businesses’ supply chains and stimulated
by the wage-financed consumption of staff.

The economic impact of lending through Funding Circle


£2.4 bn
Annual gross value added
Since Funding Circle issued its very first loan to a small
business in August 2010, lending through the platform
has grown rapidly in the UK. The value of new loans issued
increased by 77 percent in 2017. At December 2017, its stock of
supported by loans under management in the UK was £1.5 billion—four times
lending through what it was at the end of 2014. When all impacts are included,
Funding Circle we estimate these loans supported a £2.4 billion gross value
in the UK added contribution to UK GDP per annum.

Funding Circle’s loans also have a significant impact on the UK

labour market, enabling an estimated 44,600 jobs in 2017. This
activity and employment generated some £730 million in annual
UK tax revenues for HM Treasury.

The economic impact of Funding Circle in the UK has grown

significantly over the last three years. We estimate that, at the
end of 2017, the annual gross value added contribution to GDP
associated with its stock of loans under management was 3.8
times what it was three years earlier, with the jobs associated
with these loans having increased by 3.5 times in that period.


Lending through Funding Circle to small businesses in the

United States has also grown rapidly. In December 2017, 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. 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 $2.0 billion per annum;
27,700 jobs were sustained and the activity supported $790
million in annual tax revenues.

The economic impact of lending through Funding Circle


Lending through the platform is making an increasing

contribution to the German economy. Having only started
serving German small businesses in 2015, Funding Circle’s loans
under management at the end of December 2017 supported
$2.0 bn
Annual gross value added
an annual €103 million gross value added contribution to supported by the
German GDP. Some €61 million (59 percent) of this contribution platform’s loans
was generated by the platform’s small business customers. in the US
Funding Circle’s loans under management at December 2017
are estimated to have enabled some 1,700 jobs in Germany,
with 900 of these (55 percent) located at Funding Circle’s small
business customers.


Funding Circle has more loans under management than any

other online lending platform in the Netherlands. Despite
only launching in 2015, 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. Of this, 58 percent was
generated by the platform’s customers and 21 percent in their
supply chains, while 22 percent was associated with the retail
and leisure outlets at which all these employees spend their
wages. The platform’s lending also sustained some 900 jobs in
the Netherlands, and €20 million in annual tax revenues.


The results of a survey of 1,243 borrowers undertaken in

February 2018 show small businesses have the same motivations
in taking a loan extended through Funding Circle across all
four countries. The simple loan application and the speed of
the process were the main reasons firms borrowed from the
platform, according to the survey results.

The economic impact of lending through Funding Circle

Small firms are very important Historically, small businesses This study looks at one online
to industrialised economies. have been heavily dependent lending platform for small
According to the OECD, on banks for their external businesses: Funding Circle.
small and medium-sized finance. However, 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.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. For
percent of GDP on average dependent on only one source firms seeking external finance,
across the OECD countries. of finance. Many creditworthy the platform undertakes a
small businesses were denied credit assessment, facilitates
access to credit or suffered a the loan to the business, and
funding shortfall when they collects the repayments. For

£1.5 bn
most needed it. Although, investors, it opens up lending
the picture is different across opportunities not previously
the four countries this study available to them, facilitates
covers, banks seem to have the extension of the loan, and
In loans under management in pursued different policies on collects and pays the interest
the UK at December 2017 the interest rate spreads, and and principal they are owed.
the fees and commissions they
charge small firms relative to The report assesses
Borrowed by 25,500 customers their larger counterparts. This the impact of lending
in the UK. has hindered many businesses’ through Funding Circle
economic performance, and in four countries: the
forced some into liquidation. United Kingdom, United
States, Germany and the
In the aftermath of the Netherlands. The platform’s
financial crisis and global business is at different levels
recession, a number of non- of maturity across these four
bank sources of finance to economies, having issued its
small businesses emerged and very first loan in the UK in
expanded—often facilitated August 2010. At December
by innovations in technology, 2017, 25,500 small businesses
such as online lending. This customers had current loans
has served to decrease small through Funding Circle in the
firms’ dependency on banks UK, with the stock of loans
for external finance. under management standing
at £1.5 billion—72 percent of
the loan portfolio across its
four markets (see Fig. 1).

10 1
OECD, Enhancing the contributions of SMEs in a global and digitalised economy, 2017.
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. By December in each particular country. It of the lending extended by
2017, the platform had a stock investigates the industries Funding Circle in that country.
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). operate and their location, may flow from Funding Circle’s
Funding Circle issued its first and reviews the average size, small business loans:
loans in Germany and the duration and terms of the
Netherlands in November 2015. loans issued in 2017. • economic activity generated
at the borrower company by
the loan;
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. It borrower’s supply chain;
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. in February 2018 on 1,243
by the loan, which are
borrowers’ motivations for
subsequently spent in the
Each chapter looks at the using Funding Circle, looks
consumer economy.
impact of the financial crisis on at the impact of the loan for
bank lending to small business, a small business, and asks
For each country, 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 reviewing survey Funding Circle loan.
added contribution to GDP,
evidence of small businesses’
employment, and tax receipts
perceptions about the credit
conditions they face.

Fig. 1: Funding Circle’s stock of loans under management at

December 2017
£ million

1,400 1,489





400 479

67 35
UK US Germany The Netherlands
Source: Funding Circle

The economic impact of lending through Funding Circle

Mainstream finance has not 2.1 SMALL BUSINESSES’ ACCESS TO FINANCE
served small businesses in
the UK well in recent years, Banks continue to However, 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. The
outstanding bank loans since interest rates they charge. proportion of outstanding
mid-2015 has concentrated on bank loans held by SMEs fell
large businesses. After a deep and prolonged from 38.2 percent in June 2015
decline, the stock of bank to 35.6 percent at the end of
Various forms of non-bank loans to non-financial 2017 (Fig. 3). This equates to
finance, including lending businesses has gradually a one percent increase in the
platforms, are stepping in to recovered since mid-2015. value of SME loans over that
meet small businesses’ needs. Bank of England data time (Fig. 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
activity across all sectors and non-financial businesses loans held by SMEs was still
regions of the UK. 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,
firms through Funding Circle in 2015. Since then, this value has compared with a net decline
2017 increased by 77 percent, made a gradual recovery, and for large firms of just eight
following growth of 57 percent now stands 11 percent lower percent.
in 2016. Survey evidence than at the start of the period
suggests customers are (Fig. 2).2
attracted to the platform by
its fast and simple application
process (see Section 2.3).

Fig. 2: Outstanding bank loans to non-financial businesses

£ billion





Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
Source: Bank of England

Bank of England, Money and credit – December 2017. The dataset starts in April 2011. It relates to lending by all ‘monetary financial
institutions’, but as the majority relates to banks we use the term ‘bank loans’ for simplicity.
12 3
For these purposes, small and medium sized enterprises are those businesses with annual debit account turnover on the main
business account less than £25 million, as per the Bank of England definition.
The economic impact of lending through Funding Circle

Fig. 3: Small businesses’ share of outstanding bank loans to non-financial businesses

Percent of total






Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
Source: Bank of England

Fig. 4: Outstanding bank loans to small businesses

£ billion










Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17
Source: Bank of England

The economic impact of lending through Funding Circle

Fig. 5: Net lending by the banks to small businesses

£ million per quarter
2011Q2 2012Q2 2013Q2 2014Q2 2015Q2 2016Q2 2017Q2
Source: Bank of England

Part of the story here is that net At the same time, the size Evidence of gaps in the
lending by the banks to small of the SME sector has been market for loan finance, due
businesses—a measure of credit increasing. Between 2011 and to structural problems, was
extended by banks published 2017, the number of SMEs identified in the British Business
by the Bank of England— grew by 28 percent4, and their Bank’s 2016/17 report.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. With that in mind, businesses and those wishing
2014. 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. 5). over the same period. negative consequences for the
creation of new jobs.

Fig. 6: Trend in interest rate spreads on loans: small versus large businesses6
Percentage balance of respondents
Loans to small businesses
Loans to large corporates
2011 2012 2013 2014 2015 2016 2017
Source: Bank of England Credit Conditions Survey

ONS, UK business: activity, size and location – 2017, 1 November 2017.
British Business Bank, Small business finance markets 2016/17.
14 6
A positive balance indicates a fall in spreads, making it cheaper for businesses to borrow.
The economic impact of lending through Funding Circle

Fig. 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

44 6

42 4

40 2
1 1
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. platforms for their loans. The
The Bank of England’s Credit Department for Business,
Conditions Survey suggests Energy & Industrial Strategy’s
banks have reduced the survey of SME employers,
interest rate “spreads” they carried out in mid-2016, shows
charge large businesses a rise in the proportion of
over the past five years, as firms seeking funding who
measured by the differential specifically sought a loan
with key benchmark interest through an online platform—
rates (Fig. 6). However, 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. 7).8 Over the
constant. As a result, small same period, the proportion
firms which rely on banks for seeking a bank loan fell from
external finance have not seen 48 percent to 39 percent.
the same reduction in their
borrowing costs that large
firms have enjoyed.7

Bank of England, Credit conditions survey, Q4 2017. The survey covers bank and building society lenders. Here, small businesses
have an annual turnover of under £1 million, with medium-sized corporates between £1 million and £25 million.
Department for Business, Energy & Industrial Strategy (BEIS), Longitudinal Small Business Survey 2016, and earlier surveys in the 15
same series. SME employers have between one and 249 employees. The surveys are carried out in mid-year and the question covers
finance sought over the previous 12 months.
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, the results were 82
mid-2016 received all of the percent (platform loans), 81
funding they sought (Fig. 8).9 percent (any funding), and
This compares with 66 percent 71 percent (bank loans). This
of firms applying for funding suggests that small businesses
of any type, and 59 percent of are finding it easier to access
those seeking a bank loan. the funds they need from
lending platforms.

Fig. 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. 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

The results cited here have been adjusted by Oxford Economics to exclude ‘pending’, ‘don’t know’ and ‘refuse to answer’ options.
The raw results were ‘all’ 47%, ‘some’ 7%, ‘none’ 12%, ‘pending’ 0%, ‘don’t know’ 29%, and ‘refuse to answer’ 5%. The raw results for all
16 finance types were ‘all’ 60%, ‘some’ 14%, ‘none’ 17%, ‘pending’ 3%, ‘don’t know’ 5%, and ‘refuse to answer’ negligible. For bank lending
they were ‘all’ 54%, ‘some’ 11%, ‘none’ 27%, ‘pending’ 4%, ‘don’t know’ 4%, and ‘refused to answer’ negligible.
Excludes ‘pending’, ‘don’t know’ and ‘refuse to answer’.
The economic impact of lending through Funding Circle

Fig. 9: Value of new platform loans to businesses

£ million per quarter

700 737

600 640
577 589

445 454
400 416 434

297 305

203 213


2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3
Source: P2PFA, 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. Take-up
of new platform loans reached
£737 million in the final quarter
of 2017 (Fig. 9).11 Consequently,
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, and over
three times the volume seen at
the end of 2014.

Based on P2PFA quarterly data on new lending to businesses by its members, with an upward adjustment by Oxford Economics to
allow for non-members. 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. 17
The economic impact of lending through Funding Circle


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

The economic impact of lending through Funding Circle


Funding Circle’s loans to small Fig. 10: Lending through Funding Circle to UK businesses:
businesses in the UK continue ‘stock’ measures
to increase at a significant £ billion
pace. At the end of 2017,
cumulative lending since the
firm’s inception was six-and-
a-half times the value reached 2.5
at the end of 2014, at close to
£3.1 billion (Fig. 10). The total
value of business loans under
management was nearly five Cumulative lending
times higher, at £1.5 billion, 1.5
helped by growth of 43 percent
in 2017 alone. By end 2017,
some 32,000 UK businesses
had taken just under 43,000
Loans under management
loans through Funding Circle, 0.5
an average of 1.4 loans each.
In 2017, the flow of Funding 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3
Circle’s new UK lending
Source: Funding Circle
reached £1.2 billion, following
growth of 77 percent in
that year and 57 percent in
2016 (Fig. 11). Net lending— Fig. 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, to 1,400
reach almost £600 million. New lending Net lending


600 652
415 399

2015 2016 2017
Source: Funding Circle; Oxford Economics

The economic impact of lending through Funding Circle

While net lending to SMEs by Fig. 12: Recent net lending to SMEs, by Funding Circle and
UK banks fell into negative UK banks
territory at the end of 2017, £ million per quarter
net lending originated by 400
Funding Circle remained Funding Circle UK banks
strongly positive (Fig. 12). This 350
marked the second successive 300
quarter in which net lending 296
to SMEs through the platform 250
exceeded that of the entire UK
banking system. As a result,
net lending through Funding 150 173
Circle in 2017 stood at £598 145
100 124
million for the year as a whole, 100
compared to £677 million by 50
all UK-resident banks.
Funding Circle’s loans are -50 -75
spread broadly across the
small business sector. At the 2017Q1 2017Q2 2017Q3 2017Q4
end of 2017, the largest share
Source: P2PFA; Funding Circle
of loans under management
was held by companies in the
construction and property Fig. 13: Loans under management by Funding Circle by
industry (17 percent), followed industry of borrower, end-December 2017
by manufacturing and
engineering, professional and Percentage of outstanding loan value Property & construction
business support services, and Manufacturing &
retail (all at 12 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. 14). For example,
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 3.8 Finance
percent per annum over the 9% Education & training
10 years to 2025. This is well Consumer services
ahead of the forecast for the
Arts & entertainment
UK’s overall annual growth rate
of 1.9 percent. Agriculture
Source: Funding Circle; Oxford Economics Other

20 12
These figures relate to outstanding loans excluding those in default.
The economic impact of lending through Funding Circle

Fig. 14: Projected annual GDP growth by industry, 2015-2025

Real estate 2.2

Construction 1.9

Engineering 2.3

Other manufacturing 1.3

Professional & business services 3.1

Retail & wholesale 2.1

Information & communication 3.8

Hotels & catering 2.0

Whole economy 1.9

0 1 2 3 4
Source: Oxford Economics Percentage per annum

Funding Circle’s loans are Fig. 15: Loans made to UK businesses by 2017, by local
also spread right around the authority district
United Kingdom (see Fig. 15).
This includes areas where
disposable income is below the
UK average, from cities such
as Glasgow to rural counties
such as Cornwall, as well as
Northern Ireland, Wales, and Number of loans
the North East of England. 1-50

The distribution of Funding
Circle’s customers across the 101-200
UK is broadly in line with the
location of all SMEs.13 There
is a slight skew towards the 301-400
North of England: the share
of Funding Circle’s customers
in the North West, North East, 500+
and Yorkshire and the Humber
is 26, 17 and six percent higher
than these regions’ share of the
number of SMEs. Compared
to the regional bank lending
data to SMEs, Funding Circle’s
loans under management at the
end of 2017 were more heavily
concentrated in the South East,
the North West, Yorkshire and
the Humber, and London.14 Source: Funding Circle; Oxford Economics

Department for Business, Energy, & Industrial Strategy, Business population estimates for the UK and regions 2017, 30 November 2017.
UK Finance, UK lending by postcode sector – Q3 2017, 3 April 2018. 21
The economic impact of lending through 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. Among the lengthy processes. Fifteen bank first, 74 percent of those
522 UK customers surveyed, 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. 18). Nine percent
Circle: the simplicity of the of customers surveyed in June thought the bank would have
loan application process (cited 2016).15 Of these firms, 44 been too expensive, while
by 28 percent), and the speed percent said their bank loan eight percent believed they
of that process (26 percent). application had been rejected, would have been rejected.
These factors proved almost 39 percent that the process had
three times as popular as the taken too long, and 15 percent
next most important reason that the bank’s rates and/or
(Fig. 16). fees were too high (Fig. 17).

Fig. 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, Small business, big impact: The changing face of business finance, evidence from Funding Circle, August 2016.
The economic impact of lending through Funding Circle

Fig. 17: Reasons for not completing a bank Fig. 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
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
the finance I needed

Source: Funding Circle survey Source: Funding Circle survey


The firms who had approached (Fig. 19), 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. percent of the customers
of the process. 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. funding in the future.

Fig. 19: Perception of Funding Circle process time versus an alternative18

Percentage of responses






5 8 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

This question was asked of 80 firms who said they had applied for a bank loan before turning to Funding Circle, out of the whole
sample of 522. The percentages here relate to the 75 non-blank responses.
This question was asked of 442 firms who said they had not applied for a bank loan before approaching Funding Circle, out of the 23
whole sample of 522 The percentages here relate to the 424 non-blank responses.
This question was asked of the 80 firms who had approached a bank first, all of whom responded.
The economic impact of lending through Funding Circle

Most customers could obtain 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.
4% 4%
If Funding Circle did not exist,
eight percent believed it was
unlikely or very unlikely that Very unlikely
they would have obtained 38%
the funds required (Fig. 20). 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.19 This suggests 28%
the vast majority of Funding
Circle’s customers in 2018
can source external finance
from a range of providers, and Source: Funding Circle survey

are therefore choosing the

platform as its offer is more However, amongst the
attractive than the alternatives. minority of firms who believed
that they could not have
Amongst those firms obtained the funds elsewhere,
expecting to obtain funding 98 percent pointed to negative
from somewhere else in those impacts of one kind or another
circumstances, 59 percent (Fig. 22). Some 22 percent
said they would have used a expected that their business
bank loan, 20 percent another would have failed, 37 percent
online lending platform, seven pointed to a negative impact
percent a loan from a family on profits, while 26 percent
member or business associate, said the failure to borrow
and six percent a bank would have resulted in a
overdraft (Fig. 21). missed opportunity.

24 19
Cebr, Small business, big impact; The changing face of business finance, evidence from Funding Circle, August 2016.
The economic impact of lending through Funding Circle

Fig. 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. 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

Asked of 343 firms expecting to have received the funds elsewhere. 337 responded.
Asked of the 46 firms expecting not to have obtained finance in Funding Circle’s absence. Firms could tick more than one option,

and all ticked at least one. Additional options ticked are excluded in the case of firms citing ‘business failure’. 25
The economic impact of lending through Funding Circle


The Funding Circle survey’s However, Funding Circle’s This expenditure is likely to
respondents were also total economic contribution have sustained £0.4 billion in
asked about their revenues, includes two further channels gross value added per annum
employment, purchases from of impact: the indirect along the small businesses’
other firms, imports, and tax channel (activity supported UK supply chain. This activity
payments. These results were in UK supply chains due to would have generated some
used, along with information the purchases of goods and 8,100 jobs and £0.1 billion of
on Funding Circle’s total services from other firms), and annual tax revenue.
loan book, 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. wage income that is ultimately payment of wages, plus
dependent on Funding those by firms in their supply
Lending through Funding Circle’s share of its borrowers’ chain, are estimated to have
Circle directly supports £1.2 economic activity). sustained a £0.7 billion gross
billion per annum of gross value added contribution to
value added, and 25,200 jobs, The loans to SMEs managed by GDP per annum. This induced
in the UK. Funding Circle are estimated impact would have supported
to have supported £0.7 billion some 11,300 jobs, and £0.2
Scaling up from the survey of purchases of inputs of billion of yearly tax revenues.
to all those holding Funding goods and services in 2017.
Circle loans at the end of 2017,
the total annual revenues of Fig. 23: Funding Circle’s total contribution to the UK economy
these UK-based borrowers per annum (2017)
amounted to £23.5 billion.22
As a Funding Circle loan £ billion per annum Headcount, thousands
accounts, on average, for 2.5 £2.4 billion 50
eight percent of all debt and Induced 44,600 jobs
equity finance supporting
2.0 0.7 Indirect 40
these firms, we can say that 11.3
the “Funding Circle share” of Direct 35
this revenue is £1.9 billion.
1.5 8.1 30
Of this £1.9 billion, £0.7 billion 25
covers the annual cost of 1.0 20
inputs of goods and services £0.7 billion
purchased from other firms. The 25.2 15
1.2 0.2
remaining £1.2 billion is the sum 0.5 10
of these firms’ employment
0.4 5
costs, capital costs, and net
profits, and represents the 0.0 0
firms’ direct gross value added Gross value added Tax Jobs
(left scale) (left scale) (right scale)
contribution to UK GDP (Fig.
23).23 Some 25,200 people Source: Oxford Economics
were employed at Funding
Circle’s customers, producing
this output and generating £0.4
billion of annual tax revenues.24

This is based on loans under management as at 31 December 2017, excluding loans in default.
This gross value added measure of production is similar to the well-known gross domestic product measure (GDP). The only
26 difference is that gross value added is valued at the ‘basic’ price received by the producer, excluding taxes on sales such as VAT,
rather than at the ‘market’ price paid by the purchaser, including those taxes.
The taxes included are corporation tax, employers’ national insurance and business rates paid by the firm, income tax and national
insurance paid by its employees, taxes on the firms’ purchases from other firms (such as road fuel duty and ‘green’ levies), and VAT
and duties targeting final consumers of the firms’ products.
The economic impact of lending through Funding Circle

Taking all three channels Fig. 24: Approximate gross value added supported in the year
together, 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 2.5 £2.4 billion
to GDP of £2.4 billion in
2017—equivalent to all the value Induced
2.0 0.7
added produced in Rugby or Indirect
Chesterfield in a year.25
1.5 0.4
In 2017, 44,600 jobs £1.2 billion
depended on lending through
Funding Circle. Some of 1.0 0.4
these are new jobs created
as small firms expand, others 0.2
billion 1.2
are existing jobs that are 0.5
saved by the business activity 0.6
the loan enabled. This is 0.3
roughly the number of people 0.0
employed in Darlington. It End-2014 Mid-2016 End-2017
is also calculated to have Source: Oxford Economics
generated £730 million in
annual UK tax revenues.
Fig. 25: Approximate number of jobs enabled at three points
Funding Circle’s impact has in time
grown substantially over
Headcount, thousands
time, with its gross value
added impact doubling in the 50
44,600 jobs
past 18 months.
We estimate that, at the end 40 11.3
of 2017, the direct and total Indirect
annual gross value added Direct
impacts were around 4.8 30 8.1
times those associated with 23,600 jobs
the stock of loans under
20 6.0
management three years
earlier, with the jobs impacts 4.3
4.5 times higher (see Fig. 24 1.2 jobs
9,800 25.2
and Fig. 25). These annual
value added impacts were 98
percent higher than in mid- 5.5
2016—i.e. 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.

These amounts reflect the ongoing annual GDP and tax impacts, and associated ongoing jobs impact, supported by the amount
of Funding Circle loans under management at a single point in time, namely 31 December 2017. No impact is attributable to Funding
Circle loans made in the past, but which had been repaid (or defaulted on) by that date. The estimates are not, therefore, comparable 27
to those set out in the 2016 report on Funding Circle’s impact, which included effects relating to all loans made by the platform since
its inception in 2010.
Teasdale Motorcycles, based in North Yorkshire, he says, as the banks were putting up many
is a one-stop motorcycle shop that has become obstacles. 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,
England. Founded in 2003 by Andy Walker, he had the funds that allowed his company to
a lifelong motorbike enthusiast, the company buy and adapt a spare parts website, which
has grown both online and instore, and now also resulted in the recruitment of an additional
employs 18 staff members who serve thousands team member. According to Andy, this loan was
of customers each year. The company sells crucial to Teasdale’s growth. He says: “Funding
approximately 650 motorcycles annually across Circle is great, it’s a little bit more personal than
the UK, and has expanded its product range dealing with a faceless bank.”
to include clothing, accessories and repair
services. After purchasing a new premises, the company
then required additional finance for its fit-out,
Teasdale’s development has been supported so Andy applied for a second loan through
by three loans accessed through the Funding Funding Circle. A couple of years later, he
Circle platform, which over time have enabled received a third loan to add an extension to
the company to launch a new website, improve the back of the shop, increasing Teasdale’s
its instore branding, hire more staff and expand footprint by two-thirds. By moving to the new
its shop footprint. premises, completing instore branding, and
adding an extension, the company was able
The first loan came at the height of the to add a new manufacturer to its franchise list,
recession in 2008-09. At the time, Andy and has seen its revenues triple. But the story
had been approaching banks for finance to doesn’t end there: in the near future, Andy has
purchase a website—an exhausting process, plans to open a second shop.
The economic impact of lending through Funding Circle

Fig. 26: Value of outstanding bank loans to C&I customers in
In the United States, banks’ the United States
small business lending has
$ billion
grown far less rapidly than
their loans to larger firms in 1,800
recent years. Survey evidence 1,600
suggests many small firms
continue to face significant 1,400
difficulties obtaining external
finance, and frequently face 1,200
financing shortfalls. 1,000

Against this backdrop, 800

Funding Circle has grown very
rapidly in the US; its stock 600
of loans under management
in December 2017 was 12
times what it had been three 200
years earlier. 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, employment,
and tax receipts.

3.1 SMALL BUSINESSES’ Fig. 27. Bank lending to C&I customers in the US, split by size
Index, 2010 = 100
Data from the Federal Deposit
Insurance Corporation (FDIC) 180
show that the value of banks’ All domestic C&I loans to U.S. addressees
loans to commercial and C&I loans < $1 million
industrial (C&I) customers has 160
climbed steadily in nominal C&I loans < $100,000
terms since 2010. In 2017, it 150
stood 68 percent higher than
its level seven years earlier
(Fig. 26).26 130

However, smaller firms have 120

not shared in this resurgence
in bank lending. The value of 110
what the US Small Business
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. 27). Source: FDIC

FDIC Quarterly Banking Profile, Loans to Small Businesses and Small Farms
30 27
The SBA refers to loans greater than $1 million as ‘large-business loans’.
The economic impact of lending through Funding Circle

As a result, the share of The Senior Loan Officer’s However, 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.
decreased from 30 percent in banks’ interest rate charging According to the Federal
2010 to 20 percent in 2017. The policy, or other terms, towards Reserve’s 2016 Small Business
same is broadly true of the different-sized C&I firms since Credit Survey, 44 percent
smallest loan category (loans 2010. The spreads banks of small businesses have
with a principal of less than charge on loans over their cost experienced challenges in
$100,000), 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. small businesses.28 Changes funds for expansion. 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, survey evidence requirements or fees) also businesses.29
does not suggest banks are appear to have been similar
changing their policies in across firms of different sizes.
different ways for small versus
medium and large companies. Fig. 28. 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. Large and medium Small

Rather, regardless of the size 10

of the C&I firm, banks seem to
have loosened their standards
in the aftermath of the financial
crisis, before tightening them
slightly in the three years to
2016 (Fig. 28) — although this
is not to say standards were

equal across all firms at the

start of the period. -15


2010 2011 2012 2013 2014 2015 2016 2017
Source: Federal Reserve

Small firms are defined here as those with annual sales of less than $50 million.
Other financial challenges listed in the survey were; “paying operating expenses”; “making payments on debt”; “purchasing
inventory or supplies to fulfil contracts”. 31
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. 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, of credit options. Applying to
for counterparts applying for commissioned by four US sources of non-bank funding
an auto or equipment loan. trade associations30 in 2017, 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. Some
across all loan types is 24 believed there are more credit 29 percent of firms with zero
percent (Fig. 29). options available today than employees applied to an online
five years ago. Additionally, lender in 2016 (Fig. 30)31,
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 17 percent
financing shortfall. Sixty percent their business. of firms with between five and
of “successful” applicants 499 employees.
reported receiving a smaller
loan than they had applied for.
This figure was 67 percent for
those firms which earned less
than $1 million in revenue.

Fig. 29: Outcome of small businesses’ finance applications, by firm revenue size
Received all finance applied for Received some Received none


30 33

20 24


All firms Less than $1 million More than $1 million
in revenue in revenue
Source: Small Business Credit Survey 2016

Electronic Transactions Association, Innovative Lending Platform Association, the Marketplace Lending Association, and the Small
Business Finance Association.
32 31
‘Online lenders’ are defined in the Small Business Credit Survey, published by the Federal Reserve Banks of Cleveland and
Richmond, as non-bank alternatives and marketplace lenders.
The economic impact of lending through Funding Circle

Fig. 30: Credit sources applied to by employment size of firm, 201632

Percent of those applying for credit, multiple response
Non-employer firms Small employer firms Larger employer firms
49 50
45 44


20 23

17 17
10 14
7 7
Large bank Small bank Online lender Credit union CDFI
Source: Small Business Credit Survey 2016


Funding Circle’s loan issuance Fig. 31: Value of new loans issued through Funding Circle
increased significantly over
$ million
the course of 2017. A total of
$509 million new loans were 600
issued in 2017, an increase
of 80 percent from the $281 500
million issued the previous
year (Fig. 31). This also 400
represents a nine-fold increase
in the value of new loans
compared to 2014.
275 281


2014 2015 2016 2017
Source: Funding Circle, Oxford Economics

Taken from the 2016 Small Business Credit Survey: Report on Microbusinesses, published by the Federal Reserve Banks of Cleveland
and Richmond. Small employer firms are defined as those with between 1 and 4 employees. Larger employer firms are defined as
those with between 5 and 499 employees. CDFIs, or community development financial institutions, are financial institutions that 33
provide credit and financial services to underserved markets and populations.
The economic impact of lending through Funding Circle

Fig. 32: Loans issued through Funding Circle by 2017, by ZIP code
Number of loans

Source: Funding Circle; Oxford Economics

The businesses that borrowed 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., scientific, &
the United States, based on technical services 17
the distribution of loans by
ZIP code (Fig. 32). There are, Retail 14
however, a few concentrated Health care &
areas for Funding Circle loans, social assistance
such as Los Angeles and Miami. Construction 10

Funding Circle originates Other services 9

loans to small businesses
across a wide and diverse Hospitality 8
range of industrial sectors. Administrative, waste
By value of its loans under 5
& remediation
management at the end
Wholesale 5
of 2017, small firms in the
professional, scientific and Manufacturing 4
technical service sector had
received the largest amount of Information 3
credit (17 percent of the total),
followed by the retail sector 0 5 10 15 20
(14 percent) (Fig. 33). Percentage of all loans
Source: Funding Circle, Oxford Economics

The economic impact of lending through Funding Circle


Fig. 34: Main reason for borrowing from Funding Circle
Percentage of responses


10 13
5 7 7 7 2 2
4 0

io n

nk a

ic r

ra ve

lo for




ity f
un o
rv e

at a

ba for

se tom




st iti
ic lo

m se

rm n

re et

te tio

pl le

m en

by ed

te p
ap mp



co S
a op
in om
an ct


lo je







Source: Funding Circle survey

As part of this project, 382 Customers value the There is increased appetite
of Funding Circle’s small speed and simplicity of for using lending platforms.
business customers in the US the application process. Of all the small business
completed a survey to gain When asked about the most customers surveyed, 70
insights into their experiences. important reason for borrowing percent did not attempt to get
In this section, we explain its through Funding Circle, the a bank loan before applying to
key findings. most common response, cited Funding Circle for their most
by 30 percent of customers, recent loan. The main driver
was the speed of the process of this decision, cited by over
— followed by the simplicity three-quarters of customers
of the application, cited by 19 who did not request a bank
percent of customers (Fig. 34). loan, was a perception that
the process would be too
Fig. 35: Reasons for not requesting a loan from the bank33 burdensome. A further nine
percent thought they would
Percentage of total sample
be rejected (Fig. 35).
4% 4% The decision would have taken
6% too long/too much hassle
Thought I would be rejected

Didn't know how to approach

a bank for the financing I needed
76% Thought it would be
too expensive

Source: Funding Circle survey

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
The economic impact of lending through Funding Circle

Of the businesses that had Fig. 36: Reasons for not receiving requested bank financing34
first approached a bank, 50
Percentage of responses
percent said their application
was rejected. A further 36
percent responded that the 7%
process took too long, while 7%
seven percent felt the bank’s
rates and fees were too high Application rejected by bank
(Fig. 36). 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. 37). Some 21 percent
thought the process would be Source: Funding Circle survey
at least one month faster.

Fig. 37: Perception of Funding Circle application time relative to other providers35
Percentage of responses

60 64




3 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

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).
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).
The economic impact of lending through Funding Circle

Businesses are confident Fig. 38: Likelihood of obtaining funds in Funding Circle’s absence
about the availability of non-
Percentage of responses
bank sources of finance, but
still chose Funding Circle and
would do again. 40 42
If Funding Circle did not exist,
42 percent of respondents 30
believed it was very likely they
would have obtained funds 26 26
from other sources (Fig. 38). 20
Only seven percent felt it was
unlikely or very unlikely that
they wouldn’t have been able 10
to obtain the required funds.
These businesses are, therefore, 5 2
choosing Funding Circle rather 0
than feeling constrained by a Very likely Likely Don't know Unlikely Very unlikely
lack of choice. Source: Funding Circle survey

Without funding, businesses percent of respondents, was

felt they would have missed that they would have missed an
an opportunity. opportunity (Fig. 39). A further
22 percent believed they would
Asked about the impact of not be able to consolidate their
not receiving funding through debt, while 16 percent thought
Funding Circle, the most that they would have been
common response, given by 27 unable to achieve profit growth.

Fig. 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

The economic impact of lending through Funding Circle


The small businesses surveyed The small businesses that supply chain. This economic
were also asked about their receive loans through Funding activity and employment
revenues, employment, Circle stimulate economic supported $170 million in
purchases from other activity through their annual tax revenues (Fig. 40).
businesses, imports and tax procurement and payment of
payments. This information wages. 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, due to the purchases of Funding Circle created an
wider US economy. goods and services from other additional $760 million gross
firms. The induced impact value added in 2017. 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 8,300 jobs.
$790 million per annum of payment of wages by small The additional output and
US gross value added, and business customers and the employment also supported
14,800 jobs. firms in their supply chain. $310 million in annual tax
This stimulates economic revenues.
By scaling up the survey activity at retail, leisure and
results to all businesses holding other outlets, and in these Aggregating the impact
Funding Circle loans at the companies’ supply chains. across all three expenditure
end of 2017, the total gross channels, 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 $13.0 procurement that sustained value added contribution
billion per annum. On average, an annual gross value added to US GDP of $2.0 billion in
Funding Circle loans comprise contribution to GDP of $490 2017. This was associated
nine percent of all its US small million in 2017. To make this with a total of 27,700 jobs,
business customers’ liabilities. output, some 4,600 jobs were and generated $790 million in
We estimate lending through supported along the SMEs’ annual tax revenues.
Funding Circle to small firms
made a $790 million gross Fig. 40: Funding Circle’s total contribution to the US economy
value added contribution to US in 2017
GDP in 2017. $ million per annum Headcount, thousands
2,500 Induced 27,700 jobs 30
To produce this economic
$2.0 billion
output, the small businesses Indirect 25
2,000 8.3
generated some 14,800 jobs
and paid $310 million of annual 760 Direct 20
tax revenues.36 4.6
1,000 490 $790 million
When we also account for the 10
indirect and induced impacts, 310 14.8
500 5
lending through Funding Circle 790 170
is found to have supported a 310
0 0
total of $2.0 billion of annual Gross value added Tax Employment
gross value added and enabled (left scale) (left scale) (right scale)
27,700 jobs in the US in 2017. Source: Oxford Economics

38 36
Taxes include corporation taxes, personal taxes and taxes on production
The economic impact of lending through Funding Circle


Elijah’s Xtreme Gourmet Sauces makes and hunting market, and a hot sauce gift box. 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, North Carolina, but to meet this order, Elijah’s Xtreme would
using chilis grown in their garden. The pair have have to pay the co-packer up front. After
long had a mutual love of chilli peppers and receiving a letter from Funding Circle, Bret
hot sauces—when he was six, Elijah wanted to applied online for a loan. They received the
become the youngest person to eat the world’s money in a matter of days, allowing them
hottest chilli pepper. not only to launch the two products, but to
purchase a large order of square bottles for a
In 2013, after distributing samples of their new spicy BBQ sauce as well.
homemade sauce to widespread acclaim, they
found a contract packager who was able to “The biggest challenge for us has been finding
replicate the recipe. Since then, the company the resources necessary to help us grow the
has grown to sell a range of hot sauces business,” Bret explains, adding that a common
through local, 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. Released from such frustrations,
to develop new sauces, purchase bottles, and the pair have big plans: in the next two or
enhance the packaging of its products. three years, 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, giving Elijah’s Xtreme access to a
expansion, as Elijah’s Xtreme looked to create commercial kitchen—and greater control over
a grilling glaze for game meat, aimed at the its products.

The economic impact of lending through Funding Circle

In the wake of the global 4.1 SMALL BUSINESSES’ ACCESS TO FINANCE
financial crisis, 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. 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, years, with the total stock 2017, 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- all sizes are much tighter today.
increased by 15 percent over financial corporations some
the same time period.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. 41).38 However, enterprises (SAFE) suggests
are still in their infancy in following the prolonged period small businesses in Germany
Germany, but growing very of decline and stagnation in have clearly felt the impact
rapidly. Funding Circle issued business borrowing post- of this wider picture of
its first loan there in November financial crisis, this value is still constrained business lending.
2015. Its stock of loans under only three percent higher in In the latest survey, 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, 16 percent of small
year before. 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. percentage points lower than
Circle in December 2017 on in the six months to March
German GDP, employment, 2015 survey. 39
and tax receipts.

Fig. 41: Outstanding bank loans to non-financial businesses, January 2008 to December 2017
€ billion
Actual amount CPI-adjusted terms









2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: ECB, Federal Statistical Office, Oxford Economics.

Federal Statistical Office data on real gross value added by economic sector.
ECB Statistical Data Warehouse. ‘Bank lending’ here includes all loans by German monetary financial institutions, other than the
40 Bundesbank. The non-financial corporation borrowers in this series could be located anywhere in the Euro Area in principle, but are
likely to be predominantly German.
European Central Bank, Survey on the Access to Finance of Enterprises, November 2017. The first survey covered the six months
to June 2009, the second the six months to December 2009, but the third covered the six months to September 2010. Since then, it
has been undertaken every six months.
The economic impact of lending through Funding Circle

Fig. 42: Trend in bank finance costs other than interest costs40
Percentage balance






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 Despite its small size, 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. In 2016, €94 four years, 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).41 non-bank options in Germany, greater in 2016 than three
But the proportion for which making it the fourth largest years earlier (Fig. 43).
the bank loan option was “not national market in Europe for
relevant” (namely, they had this category of funding.42
not used them in the past and
were not considering using Fig. 43: Online non-bank business finance market volumes,
them in the future) rose from 2013 to 2016
30 percent to 51 percent. € million
The same survey points to a
continual decline, since late 90 94
2011, in the interest rates paid 80
by small firms to their banks. 81
But it also shows a continual 60
increase in bank financing
costs other than interest
costs, such as charges, fees
or commissions—a trend that 30 36
dates back to the first surveys 20
in 2009 (Fig. 42). Furthermore, 10 17
over the year to September 0
2017, these fees rose at a higher 2013 2014 2015 2016
pace than previously recorded. Source: Cambridge Centre for Alternative Finance

A positive balance indicates that, in the previous six months, more firms experienced a rise in charges, fees and/or commissions
than a decline.
Where relevant in the SAFE questionnaire is defined as “have you used them in the past or considered using them in the future”. 41
Cambridge Centre for Alternative Finance, Expanding Horizons: The 3rd European Alternative Finance Industry Report, 2018. Where
Business finance is defined as P2P business lending, balance sheet business lending, debt-based securities, profit sharing, equity-
based crowdfunding, and real estate crowdfunding.
The economic impact of lending through Funding Circle

Fig. 44: Types of finance used by SMEs, 2014Q4 to 2017Q343

Percentage of SMEs Bank loan (left axis) Other financing (right axis) Percentage of SMEs
22 1.8
16 1.3
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, the survey also for any type of finance, 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. While
borrowing habits of its small of the funding when they rejection rates were consistent
firms. In September 2017, only applied for non-bank sources across the funding types,
1.6 percent of small businesses of credit. Of firms who the proportion of firms who
reported using “other” forms applied for “other” sources of received only some of the
of financing, including online financing, 87 percent received funding they had applied for
lending, in the ECB survey—one all of the funding sought (Fig. varied considerably.
tenth of the number who said 45). This is higher than the 80
they used bank loans (Fig. 44). percent for firms applying

Fig. 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

Other financing here includes peer-to-peer lending, crowdfunding, participating loans, subordinated debt instruments, loans from
a related company, shareholders or family and friends, leasing, factoring, grants and issuance of equity and debt securities.
42 44
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 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


Fig. 46: New loans issued through Funding Circle, 2016-2017 Many Funding Circle loans go
Number of loans € millions
to businesses in high-growth
industries. Comparing the
800 Number (left axis) Value (right axis) 60
industries that Funding Circle
55 loans are supplied to with the
685 nearest corresponding sectors
in Oxford Economics’ Global
500 Industry Model, four out of the
400 30 top five industries by share
of loans under management
300 are forecast to grow more
200 251
rapidly than the economy as
10 a whole. In particular, IT and
100 communication is predicted
0 0 to grow at an annual rate of
2016 2017 3.3 percent between 2015
Source: Funding Circle and 2025, against the whole
economy average of 1.5 percent.
Funding Circle’s German
activities have grown Fig. 47: Loans under management to Funding Circle by
substantially. The 685 new industry of borrower
loans issued in 2017 was
170 percent higher than the 0 50 100 150 200 250 300
previous year, the first full year Retail & wholesale
of Funding Circle operations
in Germany (Fig. 46). 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,
Transport & storage
three times larger than the
amount issued in 2016. Other services
Funding Circle originates Rental and leasing
loans to companies in almost
Financial services
every industry in the German
economy. By number, 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, accounting
for 25 percent of the total (Fig. Administrative services
47). By value, the largest share Arts & entertainment
of loans under management (23 Real estate
percent) goes to construction
firms, reflecting the higher
average value of the loans taken 0 5 10 15 20
out by firms in this industry. Source: Funding Circle € millions

The economic impact of lending through Funding Circle

Funding Circle’s customers Fig. 48: Funding Circle loans made by 2017, by geography
are also based across the
Number of loans
length and breadth of
Germany. In 2017, loans were 0
made to companies located
in 56 percent of the country’s
districts (Fig. 48).45 The largest 5-10
number of loans were made 11-20
to small firms located in Berlin
and Hamburg. 21-50

Source: Funding Circle; Oxford Economics


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, some application process. borrowing through the
140 customers were surveyed in platform. The speed of the
Forty-nine percent of the
Germany as part of this project. application and judgement
German Funding Circle
In this section, we explain the process ranked second,
customers surveyed reported
survey’s key findings. attracting 29 percent of
that the simplicity of the
respondents (Fig. 49).

44 45
Districts defined as NUTS level 3.
The economic impact of lending through Funding Circle

Fig. 49: Reasons businesses borrow through Funding Circle

Percentage of responses




4 4 4 2
6 1
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. Some
had first attempted to secure Circle, the vast majority—some 86 percent of firms reported
a bank loan. Of these, 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, while 61 percent or hassle involved in applying, was faster compared to other
reported that their bank loan rather than the risk of rejection providers considered (Fig.
was not completed because or expense. 50). Some 29 percent of firms
the process took too long or reported that the process was
because it was too expensive. at least a month faster.

Fig. 50: How the speed of Funding Circle’s loan applications compared with other providers
Percentage of responses



20 26

3 12
0 1 1
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

The economic impact of lending through Funding Circle

Nonetheless, most small loan application process, and affected. Some 51 percent
businesses said that if they other aspects of its offer. of firms said they would not
were unable to use Funding undertake an investment
Circle, they would have applied Customers fear reduced (Fig. 51), while 32 percent
for other types of finance. investment and missed thought they would have
A large share of firms (64 opportunities. 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. not received their loan for borrowers. A further 29
This suggests they are opting through Funding Circle, percent and 13 percent said
to approach Funding Circle many felt their prospects they would have had weaker,
first, for its simple and fast would have been adversely or no, profit growth.

Fig. 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


As part of the survey, 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, million per annum to German acting as working capital, for
employments, procurement of GDP, and 900 jobs. example. Analysis of the survey
inputs of goods and services, of borrowers revealed that
imports and tax payments. At the end of December Funding Circle’s loans account
This information, taken in 2017, the lending platform for an average of six percent of
conjunction with Funding had almost 1,077 loans under the companies’ total liabilities.
Circle’s total loan book, was management in Germany,
used to estimate its total impact totalling more than €65
on the German economy. million. These supported the

The economic impact of lending through Funding Circle

The small businesses that use Funding Circle’s loans In total, 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. contribution to Germany’s
contribution to German GDP Mapping how this spending GDP in 2017, and enabled
in 2017. Taking Funding Circle’s generates activity along the 1,700 jobs.
share of these companies’ length of German supply
total liabilities, it is possible chains, Funding Circle’s Adding the direct, 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. This means Funding added contribution to GDP, impact of Funding Circle’s
Circle’s direct contribution to 400 jobs, and €9.1 million in loans on the German economy.
annual GDP was almost €61 annual tax revenues. Based on the value of its loans
million per annum (Fig. 52). under management at the end
The payment of wages by of December 2017, 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, sustained
platform’s lending in Germany million in gross value added, 1,700 jobs, and generated €24
directly supported some 900 both at retail and leisure outlets million in annual tax revenues.
jobs and €4.6 million in tax and in their supply chains. This
revenues in 2017. activity supported 400 jobs
and €10.5 million in taxes.
Lending through Funding
Circle also supports activity Fig. 52: Funding Circle’s total contribution to the German
via small businesses’ spending economy, 2017
on goods and services, and
€ millions Headcount
their payment of wages.
120 1,700 1,800
The supply chain (“indirect”)
103 1,600
impact arises as borrowers Indirect
100 400
spend money on inputs of
22 Direct 1,400
goods and services from
Germany-based suppliers. The
80 1,200
wage-financed consumption
(“induced”) impact reflects the 21
payment of wages by Funding
Circle’s customers, and the
firms in their supply chain, to
their staff, who in turn spend 40 600
a portion of their income in
61 900
Germany’s consumer economy. 24.2 400
20 10.5
0 4.6 0
Gross value added Tax Employment
(left scale) (left scale) (right scale)
Source: Oxford Economics

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

We find a similar story to 5.1 SMALL BUSINESSES’ ACCESS TO FINANCE
Germany when analysing
financing trends in the Data from De Nederlandsche Information collected from
Netherlands, 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. Between April 2011 and pronounced for loans extended
and, more recently, the UK). December 2017, Netherlands- to small businesses.47 The data,
Furthermore, the three major based banks’ lending to non- collected since September 2013,
Dutch banks’ lending to small financial businesses fell by 16 show a 16 percent decline in
businesses in the Netherlands percent (Fig. 53) 46—whereas outstanding loans to small firms
has decreased more rapidly in the United States and, more between 2013Q3 and 2017Q3
than to larger firms, with the recently, the UK, banks have (Fig. 54).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. the value of outstanding loans
policies that disadvantage to all non-financial businesses
smaller firms—a similar finding over the same period.
to the UK.
Fig. 53: Outstanding bank loans to non-financial businesses,
Funding Circle issued its first April 2011 to December 2017
loan in the Netherlands in
November 2015. Less than two € billions
years later, it had increased 330
its loans under management
to €40 million (at December 320
2017). This chapter estimates
the full impact of that lending 310
on the Netherlands’ GDP,
employment, and tax receipts.




2011 2012 2013 2014 2015 2016 2017
Source: DNB

De Nederlandsche Bank, Key indicators monetary statistics – February 2018. The data relate to lending by ‘monetary financial
institutions’ but the majority will relate to banks. We use the term ‘bank loans’ for simplicity.
50 47
De Nederlandsche Bank, Lending by Dutch large banks to the Dutch SME sector, last updated January 2018.
For these purposes, SMEs are defined as private companies and institutions which are involved in non-financial services or
production of goods, with a maximum turnover of €50 million.
The economic impact of lending through Funding Circle

Fig. 54: Outstanding bank loans to small firms from the three major Dutch banks, 2013Q3 to
€ billions




































Source: DNB

The gap is more striking when Fig. 55: Value of new business loans, 2011Q1 to 2017Q4
bank loans to business are € billions € billions
compared by the size of the Up to €1 million (left axis)
5.5 More than €1 million (right axis) 40
principal. The value of new
bank loans with a principal
of less than €1 million was 29 5.0 35
percent lower in 2017 than in
2011. In contrast, the value of
new business loans over €1 4.5 30
million was around 2 percent
lower (Fig. 55). 4.0 25

To put this decline in bank

lending to small businesses into 3.5 20
context, over the same time
period the number of small 3.0 15
businesses in the Netherlands
has been increasing. The
number of firms with 249 2.5 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.

Statistics Netherlands, The State of SMEs, Number of companies by company size and legal form, accessed February 2018 51
The economic impact of lending through Funding Circle

Fig. 56: Change in availability of bank loans or credit facilities for SMEs, 2010H1 to 2017H1
Net weighted percentage






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. 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. largest in continental Europe.51
availability of bank loans The ECB’s Bank Lending In 2016, 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, exceeded only by
half year from 2010-2015 (Fig. increased every quarter its French counterpart. Online
56).50 The results to the survey from April 2012-July 2014, as business lending accounted
question subsequently became measured by the size of banks’ for around 74 percent (or
more positive, but that conflicts margins on average loans (Fig. €132 million), followed by
with the continuous fall in the 57), while the spreads banks equity-based crowd funding
lending data. charged large enterprises fell. at 15 percent and debt-based
Since July 2015, the survey securities at eight percent.
shows a similar picture for The market for online lending
firms of both sizes. has grown rapidly: between
2015 and 2016, the volume
of lending through online
platforms increased by 79

European Central Bank, Survey on the access to finance of enterprises, November 2017
Cambridge Centre for Alternative Finance, Expanding horizons, the 3rd European alternative finance industry report, 2018. Where

52 business finance is defined as P2P business lending, balane sheet business lending, invoice trading, debt-based securities, profit
sharing, equity-based crowdfunding, and real estate crowdfunding.
The economic impact of lending through Funding Circle

Fig. 57: Trend in banks’ margins on average loans, April 2011-Dec 2017
Net weighted percentages
Loans to SMEs Loans to large enterprises
Spreads increase




Spreads decline




2011 2012 2013 2014 2015 2016 2017
Source: DNB

There is evidence that demand Fig. 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.
The ECB’s SAFE found the
proportion of firms using non- Bank loan
traditional types of financing, 25
including online lending, has Other financing
been increasing, albeit with
large fluctuations in each 20
period (Fig. 58). Almost 16
percent of small firms reported
using “other financing” in
the first six months of 2017,
compared to around 13 10
percent in the first half of 2011.

2011 2012 2013 2014 2015 2016 2017
Source: ECB

Other financing here includes peer-to-peer lending, crowdfunding, participating loans, subordinated debt instruments, loans from a
related company, shareholders or family and friends, leasing, factoring, grants and issuance of equity and debt securities. 53
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

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


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

The economic impact of lending through Funding Circle

Fig. 62: Loans issued through Funding Circle, end 2017, by geography
Number of loans

Source: Funding Circle; Oxford Economics


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.

The economic impact of lending through Funding Circle

Fig. 63: The reasons small businesses borrow through Funding Circle
Percentage of responses

6 2 1 1 1 1
5 4
io n

nk a


lo an

ic r


ra ve

ity f

un o
rv e

at a

ba for

se tom




st iti
ic lo

m se
d r

re fo

re et

pl le

m en
by ed

te p
cu n
ap mp



co S
in om
an ct

se ti

lo eje



un op




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,
the time and hassle involved
Compared to Funding Circle’s was the most common reason
other markets, a larger given—cited by 65 percent of
proportion of customers in these firms. However, 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. applying by, respectively, 16
percent and six percent of firms.

Fig. 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

the finance I needed

Other 11

0 10 20 30 40 50 60 70
Source: Funding Circle survey Percentage of responses

Note: this excludes businesses who did attempt to secure a bank loan before applying to Funding Circle. 57
The economic impact of lending through Funding Circle

Some businesses were Fig. 65: Businesses’ expectations of receiving external finance
uncertain they could access if Funding Circle did not exist
external finance from Percentage of responses
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. Some 34 percent
responded that they did not Very unlikely
know, reflecting uncertainty 7% 21%
surrounding credit conditions 8% Don’t know
(Fig. 65). Just 51 percent of
firms thought it “likely” or Source: Funding Circle survey
“very likely” that they could
secure funding through non- Without funding, firms would their loan, while 16 percent
bank sources; of these, 54 have lost revenue or lowered believed their revenue may
percent would have turned investment. A considerable not have grown at all (Fig. 66).
to bank loans, and a further portion of Funding Circle In addition, almost a quarter
19 percent to other online customers in the Netherlands— of the businesses surveyed
business finance providers. 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.

Fig. 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

The economic impact of lending through Funding Circle


As part of the survey, Funding (around six percent), the direct The indirect channel captures
Circle customers were asked gross value added contribution the economic activity
for details of their revenues, attributable to Funding Circle stimulated by the small
employments, procurement was €38 million per annum. business borrowers’ spending
of inputs of goods and on inputs of goods and services
services, imports and tax Outstanding loans originated from Netherlands-based
payments. This information, in through Funding Circle are suppliers. Lending through
conjunction with the platform’s estimated to have directly Funding Circle is estimated to
total loan book, 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. This
the Netherlands economy. the Netherlands’ economy in spending sustained a €13 million
2017. This economic activity gross value added contribution
Lending through Funding and employment sustained to GDP, 100 jobs, and €5 million
Circle directly contributes around €11 million in annual in taxes per annum.
an estimated €38 million tax revenues.
per annum to GDP in the Funding Circle’s borrowers, and
Netherlands, and 600 jobs. But Funding Circle’s impact companies in their domestic
in the Netherlands does not supply chains, pay their staff
At the end of 2017, the platform stop with the activity of its wages. In turn, these employees
had €40 million in outstanding customers. 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,
in the Netherlands. In 2017, of goods and services, and supporting more economic
these companies generated payment of wages to staff. This output, employment and taxes.
some €589 million in gross spending generates further Through this induced channel,
value added contributions economic impact through the Funding Circle supported a
to the country’s GDP. Using “indirect” (supply chain) and further €14 million gross value
Funding Circle’s share of the “induced” (wage-financed added, 100 jobs and €5 million
companies’ total liabilities consumption) channels. in tax revenues annually.

Fig. 67: Funding Circle’s total contribution to the Netherlands’ In total, Funding Circle is
economy in 201755 estimated to have supported
a €65 million gross value
€ millions Headcount added contribution to the
70 65 Induced 1,000 Netherlands’ GDP in 2017, and
900 enabled 900 jobs. Funding
60 14 Indirect
800 Circle’s total economic impact
50 Direct in the Netherlands is the sum of
13 100
40 600 these three channels of impact.
Through its outstanding loans
30 400 at the end of 2017, Funding
19.9 600
20 38 Circle supported an annual total
4.6 200 gross value added contribution
10 to the Netherlands’ GDP of
0 0 €65 million (Fig. 67). It further
Gross value added Tax Employment sustained some 900 jobs, and
(left scale) (left scale) (right scale) €20 million in tax revenues
Source: Oxford Economics per year.

The three channels employment numbers do not sum to 900 in the chart, as they have been rounded to the nearest 100 people. 59
Netherlands-based Cotton Ball Lights sells handmade, Fairtrade-
certified lights in Europe, South America and Australia. Founded almost
eight years ago, the company has grown from just five employees
to more than 80 staff based in the Netherlands and Thailand. 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, or creating their own unique products.

Two years ago, founder Luc Clement was keen to extend his
company’s offering to include lightboxes sourced from China. However,
a problem arose when the supplier said it required 30 percent of the
payment on placement of the order, with the remaining 70 percent
due when the stock arrived in Rotterdam. 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.

Luc compared a large range of credit suppliers before choosing to

apply for a loan through Funding Circle. Within days, 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, LEDR, in the
process). By purchasing in bulk, Luc was able to negotiate a better
price and save on shipping costs, boosting his profit margins.

When asked about the benefits of Funding Circle, Luc praises the
speed with which the company was able to secure finance, and the
favourable interest rates compared with traditional sources of finance.
But beyond the financial terms of the loan, he particularly appreciated
the human aspect of Funding Circle. Cotton Ball Lights was sent a list
of every person who had invested in the business, prompting Luc to
comment: “There are real people behind it, which is nice to see.”
The economic impact of lending through Funding Circle

Almost a decade after However, 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 £3.9 billion. These loans are
hold, small firms are still providers of credit, offering also found to have supported
struggling to access credit in small businesses an alternative over 75,000 jobs, and some
many industrialised countries. to their traditional dependence £1.3 billion in annual tax
Business surveys repeatedly on bank loans. Online lending receipts.
point to relatively high bank is at the forefront of this trend.
loan rejection rates for SMEs,
as well as financing shortfalls This report has sought to
for those small firms whose quantify the full economic
applications are accepted. impact of loans extended to
Lending data and credit small businesses through one
condition surveys suggest such online lending platform,
banks have treated larger Funding Circle, in the four
corporate customers more countries in which it operates.
favourably in the volumes In total, Funding Circle’s
they lend, and the terms and outstanding loans to small
conditions they impose, since businesses at December 2017
2007/08. supported an annual gross

The economic impact of lending through Funding Circle


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,
annual revenue, purchases costs and the “gross operating to arrive at impacts for the
from other firms, the share of surplus” (i.e. capital costs entire Funding Circle loan
imports in those purchases, plus net profits, equivalent to book, based on the ratio of
and business tax payments, earnings before tax, interest all outstanding loans to the
as well as employment levels. and depreciation in company survey firms’ outstanding
Respondents who had repaid accounts). This required loans. Revenues, purchases
their loan through Funding sector-by-sector data from the from other firms, and business
Circle, or who took out a loan national accounts, adjusted taxes paid were scaled up
in early 2018, 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, leaving only those relevant ratios from national worked out from direct gross
respondents with outstanding statistical agencies’ data. value added, using various tax-
loans at December 2017. 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. Estimates for business
taken to be the difference balance sheet (i.e. its net value taxes within this overall set
between revenues and plus all outstanding liabilities), were then checked against the
purchases from other firms, using a balance-sheet-to- business tax total derived from
while their direct employment gross-earnings multiple of the survey answers, and found
was taken straight from the three. This ratio was chosen to be compatible.
survey answers. as being within the various
ranges recommended by
The “Funding Circle share” of experts in the field, although it
those values then had to be is towards the lower end of the
calculated. Each company in scale to reflect the small size
the sample was matched with of the firms involved. The ratio
its record in the entire loan of each firm’s Funding Circle
book, 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. This enabled the value and jobs, to the share
company’s Funding Circle loan supported by Funding Circle’s
value, and industrial sector, to financing.
be identified.

The economic impact of lending through Funding Circle

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

The economic impact of lending through Funding Circle

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, except where
and financial institutions expanding abroad. otherwise stated and cited in footnotes, and
Since then, we have become one of the are copyright © Oxford Economics Ltd.
world’s foremost independent global
advisory firms, providing reports, forecasts This report is confidential to Funding Circle
and analytical tools on more than 200 and may not be published or distributed
countries, over 100 industrial sectors and without its prior written permission.
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