Need some money for your business? Click here to get our FREE Guide:
How to Get a Small Business Loan.
What are They?
Peer2Business provider of small business loans with 1 year to 5 year terms.
How popular is it?
More than $1 Billion in loans to over 10,000 small businesses since 2010.
Who will qualify for a loan?
Must be in business for at least 2 years and have a credit score of at least 620 (check your score for free here).
Who are they right for?
Businesses who need large loan amounts at relatively low interest rates and can’t qualify for a traditional bank or SBA loan.
No sole proprietorships or general partnerships. No non-profits, religious institutions, speculative real estate, used car dealers, limo companies, boating businesses, adult-related businesses, and firearm dealers.
Personal Guarantee required?
No specific collateral, but Funding Circle places a blanket lien on all your business assets, which includes all your business collateral (e.g. equipment, vehicles, inventory, etc.). If you do not pay back the loan, then they can come after these assets.
Typically 1 week.
How much do they lend?
$25,000 to $500,000.
How much can I qualify for?
Funding Circle typically lends no more than 30% of your business’ annual gross revenue.
Where do they lend?
Funding Circle offers loans in the UK and all US states, except Vermont and North Dakota.
For how long?
Borrow for 1 year to 5 years.
Cost/Interest rate of loan?
The Effective Annual Percentage Rate currently averages around 13 % to 18 % (see cost section for more details).
How do payments work?
Fixed payment is automatically deducted from your bank account on a monthly basis.
For loans under $200K, previous 3 years business tax returns, previous year’s personal tax return and W-2s, and previous 6 months business bank statements. For loans above $200K, previous 6 months business bank statements, YTD balance sheet and income statement, and outstanding business loans & credit worksheet.
Funding Circle is a good alternative if you need to borrow between $150,000 to $500,000 at a relatively low interest rate and need the money pretty quickly.
Funding Circle charges much lower interest rates than alternative lenders but higher interest rates than banks and SBA lenders. If you need to borrow less than $350,000, we recommend starting with SmartBiz, a provider of SBA loans, for the lowest interest rates. If you don’t mind waiting for the money for a few months, we also recommend Celtic Bank, another SBA loan provider, who issues loans up to $5 million.
It typically takes about 2 weeks to get access to money with Funding Circle. This is slower than alternative lenders but much faster than banks, which can sometimes take months to make your loan funds available.
The qualification requirements for Funding Circle are similar to what a bank requires. You can qualify with Funding Circle if you are in business for at least 2 years, have a minimum annual revenue of $150,000, and have a credit score of at least 620.
- Personal Credit Score: At least 620. (Check your score for free here.)
- Years in Business: At least 2 years generating revenue.
- Revenues: No minimum revenue requirements.
- Other Requirements: No bankruptcies in last 18 months and no excessive tax liens.
- Industry Exclusions: Non-profits, religious institutions, speculative real estate, used car dealers, limo companies, boating businesses, adult-related businesses, and firearm dealers.
- Other Qualifications: No bankruptcies in last 7 years, outstanding tax liens, or criminal history.
Collateral Required? Yes. While Funding Circle does not require specific collateral, it does place a blanket lien on all your business assets. This means that if you do not pay back the loan, they can sell off any asset of your business, including equipment, vehicles, and more.
Does the loan require a personal guarantee – From who? Yes. A personal guarantee means that the lender can come after your personal assets (e.g. car and house) if you don’t pay the loan. You are individually accountable for repaying the loan, even if your business closes down.
Upfront Fees – Funding Circle charges 3.49% to 4.99% of the total loan amount as an origination fee. Your origination fee is based on your creditworthiness. This is taken out when the loan is made (e.g. if you borrow $100,000 with a 3.49% origination fee then you will receive $96,510 in your account once the loan closes).
Structure of Debts: Traditional loan.
Servicing Fees: None.
Are interest rates variable? No. Interest rates are fixed and range from 5.49 % to 22.79 %, depending on your credit profile and the length of the loan. The typical interest rate is around 12 %.
How Loan Costs Work With Funding Circle
If you are familiar with a home loan or credit card loan, you have likely heard interest rates on those loans quoted as an Annual Percentage Rate (APR). APR is the cost of the loan over one year, expressed as a percentage.
Instead of quoting an APR, Funding Circle gives you the total cost of the loan. This includes 3 things:
- Origination fee of 3.49% to 4.99% which Funding Circle charges on all loans. This is taken off the top when you borrow money. For example, if you borrow $100,000 with a 3.49% origination fee, you will receive $96,510 when the loan closes and the funds are deposited in your account.
- Interest rates starting at 5.49 %. Interest rates range from 5.49% to 22.79%. We spoke to Funding Circle, and they told us that their typical interest rate is around 12%. You will learn what interest rate you will be charged once you’re approved for a loan.
- The dollar cost of the loan. In the 12-month loan example from the screenshot below, you would have to pay back between $516,371 to $540,814 (exact amount depends on your interest rate) for a 12-month $500,000 loan.
In order to make it easy to compare Funding Circle loans with other loan products, we converted the cost of the loans into an Annual Percentage Rate (APR). The APR takes fees and interest into account and tells you the cost of the loan over one year, expressed as a percentage.This can be done using the calculator below.
Here is what the effective Annual Percentage Rate (APR) and monthly payments would be for a $500,000 Funding Circle loan based on different payoff times. We assume an origination fee of 3.49% (the midpoint) and an interest rate of 12% (the average):
- $500,000 for 1 year = 17.8 % APR ($44,424/month)
- $500,000 for 2 years = 15.08 % APR ($23,537/month)
- $500,000 for 3 years = 14.13 % APR ($16,607/month)
- $500,000 for 4 years = 13.63 % APR ($13,167/month)
- $500,000 for 5 years = 13.34 % APR ($11,122/month)
As you can see, the APR for a Funding Circle loan for the ‘average borrower’ fluctuates from 13 % to 18 %. When we spoke to Jimmy Standley, president of Solé Bicycles, a small business that has borrowed from Funding Circle, he told us that Funding Circle was pretty transparent about APR. Mr. Standley knew what the APR would be on the loan before signing the loan documents.
All else being equal, a longer loan term means a lower annual interest rate and lower monthly payments. However, a longer term also means a higher total dollar cost for your loan. In the example above, you have to pay back $674,760 if you borrow $500,000 for 5 years. You only have to pay back $533,088 if you borrow for 1 year.
Funding Circle loans are costlier than a traditional bank loan but about 3 to 6 times cheaper than the APRs charged by OnDeck, CAN Capital, and Kabbage. It is as much as 12 times cheaper than the APR charged by merchant cash advances!
Below is a screenshot from Funding Circle’s website outlining total loan cost for a sample 12-month $500,000 loan. Funding Circle’s loan cost calculator is pretty good and gives you more cost details than most other lenders’ calculators.
Funding Circle has a pretty easy application process, but it’s not as fast as some other online lenders. It takes about 10 minutes to complete the online application and upload documents. A loan specialist from Funding Circle will call you a couple hours after you submit your application, answer any questions that you have, and send your application to the underwriting team. The underwriting team will approve or reject your application in 3-5 business days. If you’re approved, the funds will be available in your account in under 14 business days (typically around 7 business days).
This process reflects what we learned when we spoke to Jimmy Standley of Solé Bicycles, a Funding Circle borrower. Mr. Standley told us that his application was processed in about a week, and he received the funds in his account one week after that.
What documents need to be provided? For loans under $200K, previous 3 years business tax returns, previous year’s personal tax return and W-2s, and previous 6 months business bank statements. For loans above $200K, previous 6 months business bank statements, YTD balance sheet and income statement, and outstanding business loans & credit worksheet.
Do they need online access to any systems – Quickbooks, PayPal, bank accounts? Yes, they need access to your business bank account.
Is there a credit report pull? If so at what point in the process? Yes, Funding Circle pulls your credit history once you submit your online application. It’s a “hard” credit pull, so it can temporarily reduce your credit score.
What credit reporting service do they use? Experian.
Do they report to the credit bureaus? Beginning in April 2015, Funding Circle will begin commercial credit bureau reporting with Experian. At this time, Funding Circle does not report to the personal credit reporting agencies.
Loan Sizes and Terms
What is the minimum / maximum length of loan? The minimum term is 1 year, and the maximum is 5 years.
What is the minimum / maximum amount of the loan? The minimum amount is $25,000, and the maximum amount is $500,000 (the maximum amount you can generally qualify for is 30 % of your business’ annual gross revenues).
Payment Methods & Schedule
- Schedule of Payments: Monthly.
- Payment Initiation: Fixed payment is automatically deducted from your bank account by Funding Circle.
- Method of Payment: ACH.
- Penalties For Missing Payments: 10% of the due amount is charged for late payments. If you think you might miss a payment, Funding Circle recommends that you contact them to work out a solution.
- What Happens on Pre-Payment? There is no pre-payment penalty, and you can save money by paying off the loan early. In general, you save money by borrowing for less time.
Funding Circle has phone and email customer support for borrowers and applicants. There is also an FAQ page on their website
US-based or International? Both. Funding Circle has offices in London and San Francisco.
Support Hours: Phone and email support are available Monday-Friday 8 AM – 8 PM EST.
Other Lending Products
Funding Circle does not have any other lending products.
Need some money for your business? Click here to get our FREE Guide:
How to Get a Small Business Loan.
The Bottom Line
For businesses that need to borrow more than $150,000 and need the money soon, Funding Circle is a good, relatively low cost option.
Funding Circle will loan you up to $500,000 at 1 to 5 year terms at much lower interest rates than alternative lenders. However, the interest is still higher than what banks and SBA lenders charge. For that reason, we recommend SmartBiz for SBA loans under $350K. If you don’t mind waiting for the money, we recommend Celtic Bank for low-interest rate SBA loans up to $5 million.