Peer-to-peer lending specialist Funding Circle (FCH) is hoping to raise £300m as it targets an approximate £1.5bn flotation on the London stock market. The company is the largest of the next generation UK fintech companies operating in the lending space.

Peer-to-peer lending allows ordinary investors to back small businesses with growth funding. Funding Circle has been around since 2010 and has arranged more than £5bn of loans to small and medium sized businesses in the UK, US, Germany and the Netherlands.

In the first half of this year alone the company loaned over £1bn.

The company is able to make a decision on whether it will lend to a company within 24 hours of receiving the application.  This done by using ‘/cutting-edge technology, proprietary credit models and sophisticated data analytics’.

GROWING FAST

Funding Circle reports that its revenue grew 54% to £63m in the first six months of 2018 on a year-on-year basis. The exponential growth of the company is reflected by a compound annual growth rate of about 78% between 2015 and 2017.

During the same time frame, the company’s loan originations rose to £1.7bn in December 2017 from £721m in December 2014. The company says that one reason it is doing the IPO is ‘to support the Group in pursuing growth over profitability in the medium term’ and help it expand in both existing and new markets.

BURNING THROUGH CASH

Funding Circle is also spending large amounts of money as it enjoys this stage of rapid growth. The company did manage to narrow its losses from £46.6m in 2016 to £35.3m last year.

Free cash flow in the first six months of the year was negative to the tune of £24.2m, a clear sign that investors will need to take a longer-term view on prospects. This investment has included heavily advertising spend.

Chief executive Samir Desai says, ‘at Funding Circle our mission is to build a better financial world’.

Despite the growth of the company, it still has a long way to go to penetrate the fulol extent of what it sees as it target addressable market. The company claims to have a UK market share of just 1.9%.

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Issue Date: 03 Sep 2018