Newcastle joins SME lending platform

Newcastle City Council has invested £100,000 with crowdsourcing website Funding Circle, taking the total amount placed by local authorities on the platform to £1.695m.
The council will use the website to lend directly to businesses based in the city in order to help them grow. The funding model is gaining traction with local authorities, which contribute a set figure or percentage – typically up to 20% – of each loan application made by a business.
Leader of Newcastle City Council, Nick Forbes, said: “I know from talking to local businesses that one of the big problems they have is getting access to finance to allow them to get off the ground and grow, particularly since the financial crisis with banks becoming increasingly risk averse.
“The beauty of crowd funding is that it also gives local people the opportunity to invest in good local business ideas which not only creates local jobs but strengthens the social fabric of our communities.”
A spokeswoman for Funding Circle said that the following councils have already invested the following amounts:

Leicestershire County Council:  £1m
London Borough of Camden: £100,000
Gloucestershire County Council: £100,000
Kirklees Council: £150,000
Lancashire County Council: £100,000
Newcastle City Council: £100,000
Sefton Council: £100,000
Nottinghamshire County Council £45k

David de Koning at Funding Circle said: “We’re beginning to see more and more interest from councils looking to use the Funding Circle marketplace as a way of boosting lending to businesses in their local regions.”
Launched in August 2010, Funding Circle provides an alternative source of borrowing to small businesses, who are able to receive finance within a couple of weeks compared to up to three months for a traditional bank loan.
Once businesses pass Funding Circle’s credit assessment processes, their loan is posted to the platform. From there, investors can choose which type of businesses to lend to and bid the amount of money they wish to lend in each case.
Funding Circle claimed that partnerships with councils across the UK have resulted in a 126% uplift in the amount being lent to businesses in those councils’ areas.
In December, Leicestershire County Council announced its £1m investment would help firms with a minimum turnover of £100,000, which have been trading for at least two years. Businesses using this scheme can borrow between £5,000 and £1m and investors receive an average net return of 5.7%, said the council.
Blake Pain, cabinet member for economic development, said: “Boosting our economy is our top priority but we can’t get growth if firms are struggling to raise finance. That’s why we’ve launched this programme – to kick-start the economy, by lending some money from our reserves.”