Funding Circle has reportedly cut its 2019 revenue expectations by half as it tightens small business (SMB) lending standards, reports in Reuters said this week, and analysts are advising the FinTech to go further to protect itself.
According to GrowthBusiness.co.uk on Wednesday (July 3), The Share Centre Investment Research Analyst Helal Miah stated that "tighter lending standards from the [Funding Circle] group are needed to prevent an unsustainable rise in bad debts, protect the business and counter previous criticism."
Funding Circle has already acted on one of those recommendations, with CEO Samir Desair pointing to "the uncertain economic environment has reduced demand from small businesses, and led us to proactively tighten lending criteria" in a statement published on Tuesday (July 2).
Separate reports in American Banker said that while the company did not specifically point to the U.S. market as the source of its troubles, financial data from the company showed U.S. loan volume dropped 30 percent — significantly more declines in other jurisdictions — during the second quarter. Loan originations dropped by 9.5 percent in the U.K., the company's largest market, reports noted.
As a result, Funding Circle is also pressing pause on previously announced plans to launch in Canada so it can focus on strengthening its U.K. and U.S. operations, according to Reuters reports.
"This is a disappointing update by Funding Circle, though not entirely surprising in our view as the ambitious growth targets set out at the IPO were always going to be difficult to hit while also maintaining a firm grip on asset quality," said Goodbody Financials Analyst Colin Jackson in Reuters.
In March, Funding Circle announced that it reached the $2 billion mark in small business loans, a figure that Managing Director Bernardo Martinez said at the time put the company "in the same league as some banks established nearly a century ago," one that underscored small businesses' needs that are not being met by traditional banks.
Despite a gloomy forecast, Funding Circle is still planning for 20 percent revenue growth. Shares fell as much as 25 percent following the company's Tuesday announcement, and are down 71 percent since its September initial public offering (IPO). Reuters pointed to broader concerns in the alternative and P2P lending spaces adding difficulty for players like Funding Circle.
The company announced earlier this year that it would close its SME Income Fund.