Funding Circle Eyes Economic Volatility As Losses Grow

U.K.-based small business lending platform Funding Circle has posted wider losses in its latest earnings report of the six months to June 30, reports in MorningStar said on Thursday (Aug. 8).

The 14 percent increase in losses from £27.1 million to £30.8 million year over year wasn’t entirely unexpected: According to separate reports in Business Leader, Funding Circle cited the “uncertain economic environment” for its decision to halve revenue forecasts last month, noting that market volatility has led to reduced demand for small business loans in the U.K.

According to the company, there has been “some deterioration” in its high-risk loan portfolio, “driven by a deterioration in the consumer credit environment since 2016, which affects smaller and younger companies, and in response we tightened our risk criteria for higher risk band loans.”

Despite wider losses, Funding Circle posted a 29 percent revenue increase, hitting £81 million (about $98.42 million).

“During the first half of the year, we grew revenue by 29 percent and we now have £3.54 billion in loans under management,” said Funding Circle CEO and Co-founder Samir Desai in a statement. “As previously announced, we expect to grow revenues by c. 20 percent this year due to the uncertain economic environment and proactive actions we have taken. We continue to benefit from strong repeat dynamics from borrowers, with 46 percent of group revenue coming from existing customer, and attracting new investors to the platform.”

He added that the company is confident that it is continuing on the path “to become the world’s largest small business loans provider.”

Earlier this year, Funding Circle announced that it reached $2 billion in loan volume in the U.S. Days later, the company revealed plans to launch in the Canadian market, though suddenly delayed that initiative in June when it halved revenue expectations and tightened small business loan standards.

“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 an interview with Reuters at the time.