London: British peer-to-peer lenders were bracing for disaster when the UK voted to quit the European Union (EU) on 23 June. Maybe they needn’t have worried.
Funding Circle Ltd, the biggest online lender for small businesses in the UK, has raised $100 million in equity funding, it said in a statement on Thursday. Accel Partners, the Palo Alto, California-based venture capital firm, led the round, which included Index Ventures, Union Square Ventures, and Temasek Holdings Pte, Singapore’s state-owned investment company.
Retail investors and borrowers have flocked to their platforms since the Brexit vote. The industry’s cumulative loan volume has surged by 28%, to £8.7 billion ($10.6 billion), according to AltFi Data, a London-based research firm. Funding Circle’s lending has jumped by a third since the 23 June referendum.
Some analysts say the Bank of England’s decision to lower interest rates to 0.25% from 0.5% in August prompted retail investors to seek profits in peer-to-peer loans that were, on average, returning about 5%. Others say investors paused in the months leading to the vote and now are piling back into the space because the British economy has avoided a recession many economists predicted.
“It’s probably a combination of things,” said Cormac Leech, a London-based principal at Victory Park Capital Advisors, a private-equity firm in Chicago that invests in peer-to-peer loans. “Growth has been stronger than expected, investors are hunting for yield, and there’s a bounce-back from earlier in the year.”
In November, Funding Circle became the first online lender to arrange more than £100 million in loans in a single month. The start-up, which also operates platforms in the US, Germany, the Netherlands and Spain, on Thursday said its UK operations had positive earnings before interest, tax, depreciation and amortization in the fourth quarter. Zopa Ltd, the largest online lender to consumers in the UK, also broke into the black on that basis late last year.
Funding Circle’s round is the biggest in the UK since 2015. It bucks a drop in fintech investing in Europe and North America as start-ups morph into more mature businesses. Bloomberg