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Funding Circle’s Plan To Set (Yet Another) Precedent

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Funding Circle turned heads with its announcement last year that its SME Income Fund was planning a float, a move that marked the first time a P2P small business lending marketplace would make such a move.

Now, the company is turning heads again in the U.K. with reports from Financial Times on Friday (April 15) announcing that Funding Circle would be the first in Europe to have its small business loans securitized, meaning the loans would be bundled and sold as tradable securities.

Reports added that the plans, set to come into effect early this week, signal the continuing strength of Europe’s alternative financing industry.

“Up until now, SMEs are very linked to the banking sector,” said Moody’s Vice President Monica Curti in an interview with the publication. “We do see some opportunity for the future of securitization of marketplace lending backed by SME loans.”

Funding Circle did not comment on the move to reporters, however.

Deutsche Bank is the deal’s arranger, reports said, with loans originated from U.S.-based asset manager KLS.

Reports said Funding Circle’s plans could encourage other alternative lenders in the market to follow.

“It could be an example for all other securitizations in Europe to see how the structure can be put in place in order to mitigate some of the risks,” Curti said.

Last month, Funding Circle’s SME Income Fund was said to be in the later stages of financing with the European Investment Bank. The company declined to elaborate on the financing but said it would likely be complete by the middle of the year.

Previous financiers include Victory Park Capital, which provided $420 million in investments, and DST Global, which provided $150 million.

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