FINANCING THE FUTURE: FUNDING CIRCLE'S 2021 IMPACT - MARCH 2022
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FINANCING THE FUTURE: FUNDING CIRCLE’S 2021 IMPACT MARCH 2022
“Athleisure” brand Just Strong operates out of a 10,000 sqft warehouse in Bolton.
Financing the future: Funding Circle’s 2021 impact
TABLE OF CONTENTS
Foreword5
Executive summary6
1. State of the SME nation10
1.1 SMEs remain at the heart of the UK’s economic recovery 10
1.2 The pandemic, and recovery, continue to have an uneven
impact on SMEs 12
1.3 Post-pandemic lending will increasingly be
accessed online 14
2. Funding Circle’s 2021 economic impact18
2.1 Funding Circle continued to provide vital SME finance
in 2021 18
2.2 Investment in technology is removing barriers for
SMEs accessing finance 18
2.3 Funding Circle is helping communities level up
across the UK 19
2.4 Funding Circle’s Economic Impact 22
3. Funding the recovery24
3.1 SME indebtedness has risen, but is concentrated in the
smallest SMEs and overall debt levels remain stable 24
3.2 For the broader SME population, finance will be vital
if they are to invest, grow, and power the UK economy 25
Appendix: methodology28
MARCH 2022 3
UK florist Flower Station creates hand-crafted bouquets.
Financing the future: Funding Circle’s 2021 impact
FOREWORD
The past two years have asked a huge amount Over the past decade we have worked tirelessly
from all of us, particularly the UK’s small to evolve our R&D capabilities and tech
businesses, who have been forced to dig infrastructure. The results of this investment
deep to manage their livelihoods during these continue to materialise, and our platform is
challenging times. well-positioned to help more customers than
ever over the coming years. The timing couldn’t
This year’s Economic Impact Report—our be better; small businesses are set to play a key
third in partnership with Oxford Economics— role in levelling up the UK and should be at the
examines the vital role these entrepreneurs heart of the Government’s agenda. We know
played in driving the recovery forward in 2021. the people we support run innovative, dynamic
In order to maintain this recovery’s momentum, enterprises—providing jobs and investment to
it’s imperative that small businesses continue to areas that need it most. Their work is being felt
access the finance they need to grow. in communities located in every part of the UK.
In 2021, small businesses used their Funding
Not all businesses have been affected by the Circle loans to contribute £7.2 billion to UK GDP
pandemic in the same way, and borrowing and support more than 100,000 jobs.
motivations have changed over the past two
years. If 2020 was characterised by the funding Our platform’s impact remains a source of pride
provided through the Government’s guarantee for everyone connected with Funding Circle.
programmes (where we were proud to play We were founded in 2010, in the aftermath of
our role as the third largest CBILS provider), a crisis, to help small businesses and power
2021 saw the return of the commercial lending the economy. More than a decade later, we’re
market as these programmes wound down and helping tens of thousands of business owners
more businesses sought finance for growth, each year to reach their full potential.
rather than survival.
There is one long-term trend that has been
accelerated by the pandemic: a fundamental
shift in the way finance is accessed. It’s
now becoming clear that small businesses’
relationship with the digital world has been
permanently re-wired. After experiencing the
speed and simplicity of online services, there is
little indication businesses will go back to old
ways. Results from the report show that last
year 60% of Funding Circle borrowers were Lisa Jacobs
first-time users of online lending and more than Chief Executive Officer
three-quarters of these business owners say Funding Circle
they will come back to us first in future. This
trend is here to stay.
I’m proud we are leading the way at transforming
small business lending at Funding Circle.
5
Financing the future: Funding Circle’s 2021 impact
EXECUTIVE SUMMARY
SMES WERE ASKED TO DIG DEEP AGAIN IN 2021, BUT THEIR
RESILIENCE IS PAYING DIVIDENDS
2021 was another challenging year for the UK’s small businesses.
It started with a third national lockdown, and ended with cost
pressures building on the horizon. However, yet again, SMEs
demonstrated their resilience and ability to adapt, playing
an integral role in driving the UK’s economic recovery as
restrictions eased and the economy reopened.
Rising SME confidence dovetailed with improved performance
80% SMEs became increasingly assured as high streets reopened
and spending increased. More than half reported stable or rising
income in Q2 2021, and by the end of the year more than 80%
of SMEs confident were confident in their long-term future. Their success and that
in their long-term of the UK economy are intertwined; SMEs make up 99.8% of all
future. UK businesses and account for more than half of all turnover
generated across the country.
The ongoing recovery is having an uneven impact on three
broad groups of SMEs
The restrictions in place through 2020 and the first half of the
year had an outsized impact on a group of survivor businesses;
typically in retail and hospitality or smaller SMEs who were more
likely to have taken out Bounce Back Loan Scheme (BBLS)
funding. Hedgers took advantage of government-guaranteed
lending to build precautionary cash reserves. A final group of
thrivers continued to adapt to the challenges of the last few
years; requiring growth finance to pivot to new models or
implement investment plans.
2021 saw a resurgence of thrivers as the number of SMEs
48%
intending to grow doubled
The number of businesses reporting a significant reduction in
turnover halved in the 12 months from Q2 2020, while the share
Reduction in SMEs of SMEs that have spent all of their government-backed funding
reporting significant has continued to rise. During the same period, the percentage
fall in turnover. of SMEs intending to grow has doubled and is now at pre-
pandemic levels. This trend is expected to continue, highlighting
the vital role access to finance will continue to play.
6
Financing the future: Funding Circle’s 2021 impact
ACCESS TO FINANCE REMAINS CRUCIAL IF THE RECOVERY
IS TO CONTINUE
While BBLS has driven an increase in SME debt levels, this is
concentrated in the smallest SMEs and remains manageable
Nearly all of the additional SME debt generated over the last
two years was driven by BBLS, with 85% of funding going to
micro-businesses. The percentage of SMEs with high debt-to-
cash ratios has increased to one-third as a result, however the
Bank of England considers this manageable and only 4% of
SMEs are concerned about their ability to make repayments. The
majority of small businesses remain debt-free.
75%
SMEs are increasingly ready to invest in their future
The number of SMEs happy to use finance to grow their
business is at the highest level since 2016, and three-quarters of
Funding Circle customers expect to require finance in the future. of Funding Circle
£
With 86% of this future funding earmarked for investment and customers require
growth, ensuring continued access to fast and simple SME future finance.
finance will help the recovery maintain its momentum.
THE SHIFT TO ONLINE LENDING APPEARS PERMANENT
Once SMEs borrow online, they don’t look back
Over the past year, 40% of SMEs have increased their use of online
banking services, particularly in lending with 60% of Funding
Circle’s 2021 borrowers accessing finance online for the first time.
Even as the market normalises, evidence suggests SMEs won’t be
abandoning the digital technology adopted during the pandemic;
three-quarters of these first-time customers will come back to
Funding Circle first next time they need finance.
Platforms like Funding Circle are well-positioned to benefit
9 seconds
from this transition
The borrowing process is cited as the biggest barrier preventing As little as
SMEs from applying for finance, while speed of access is also
critical. Funding Circle’s technology platform and instant Funding Circle
decision lending capabilities are helping dismantle these lending decision
barriers—applications can be completed in six minutes, with times.
lending decisions in as little as nine seconds.
7
Financing the future: Funding Circle’s 2021 impact
ONLINE LENDING IS ACTING AS A CATALYST TO LEVEL UP
THE UK
Funding Circle reaches SMEs in traditionally under-funded areas…
£7.2 billion In 2021, Funding Circle facilitated £2 billion of lending to SMEs
located in every one of the UK’s 650 parliamentary constituencies,
an average of £3 million per constituency. Funding Circle’s lending
Contribution to UK is also over-represented in some of the regions with the UK’s
GDP supported by largest investment gaps, including the Midlands and Yorkshire and
Funding Circle’s the Humber. With businesses outside of London traditionally up to
lending in 2021. 50% less likely to secure finance, Funding Circle is helping SMEs
drive growth across the country.
…and is generating investment in communities that need it most
13% of Funding Circle’s lending helped SMEs located in the 10%
of local authorities experiencing the most social deprivation.
Funding Circle’s lending continued to support a significant
economic impact
In total, lending through Funding Circle supported a £7.2 billion
contribution to UK Gross Domestic Product (GDP) and more
than 103,000 jobs. The activity and employment supported
by these loans also raised significant tax revenues for the
Government—totalling an estimated £1.9 billion.
8
Financing the future: Funding Circle’s 2021 impact
FUNDING CIRCLE’S
ECONOMIC IMPACT
IN 2021
UK IMPACT Direct Indirect Induced
GDP CONTRIBUTION EMPLOYMENT TAX REVENUES
£7.2 billion 103,300 jobs £1.9 billion
£3.9 bn £2.4 bn
51,200
£1.0 bn
£1.0 bn 17,100 £0.2 bn
35,000 £0.7 bn
EVERY £1 MILLION LENT THROUGH FUNDING CIRCLE …
… contributes … supports … and generates
£1.8 million 26 jobs £0.5 million
to GDP in taxes
IN 2021 …
More than 80% of SMEs confident Lending through
in their long-term future by the end Funding Circle
of the year. reached SMEs
located in every one
Funding Circle customers were of the UK’s 650
9% more productive than the parliamentary
national average. constituencies,
with an average
£ 75% of Funding Circle customers
expect to require future finance.
of £3 million
per constituency.
9Financing the future: Funding Circle’s 2021 impact
1. STATE OF THE SME NATION
1.1 SMES REMAIN AT THE HEART OF THE UK’S ECONOMIC RECOVERY
In 2021, SMEs again Fig. 1: UK monthly GDP index
demonstrated their resilience 2019 = 100
and ability to adapt to a
105
challenging environment.
Their tenacity helped the
recovery gather pace 100
throughout the year as
Covid-19 restrictions were 95
eased and removed. Following
a period of stronger-than-
expected growth, the size of 90
the UK economy reached pre-
pandemic levels in November 85
2021, and in December 2021
remained the same size as in
80
February 2020 (Fig. 1).1
This recovery can be seen 75
in the revival of retail sales.
As the trend towards online 70
shopping continued and Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
retailers re-opened their doors, 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021
retail sales for 2021 were up Source: ONS
on the previous year and were
comparable to pre-pandemic Fig. 2: Total monthly value of UK retail sales, 2019-2021
levels. Retail sales in 2021 £ billion 2019 2020 2021
totalled £423bn, 5% higher
55
than in 2020, and 7% higher
than in 2019 (Fig. 2).2
50
SME confidence continued to
rise throughout the year. The
45
gradual removal of restrictions,
and full-reopening of England
from the summer, helped drive 40
improved SME performance;
56% of SMEs reported stable
or rising income in Q2 2021, 35
compared to 32% in Q4 2020.3
This has allowed SMEs to 30
become increasingly assured,
with the share of businesses
reporting high confidence 25
in their survival prospects
growing throughout 2021 for 20
each size of business (Fig. 3).4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: ONS
1
ONS (2022) GDP monthly estimate, UK: December 2021
2
ONS (2022) Retail sales pounds data
10 3
BVA BDRC (2021) UK SME Finance Monitor (Q2 2021)
4
ONS (2022) Business Insights and Conditions Survey (BICS) – Wave 45Financing the future: Funding Circle’s 2021 impact
Fig. 3: Percentage of SMEs reporting confidence in their survival
Percentage share
90%
80%
70%
60%
50%
40%
100-249 employees
30%
50-99 employees
20%
10-49 employees
10%
0-9 employees
0%
20
20
20
21
21
21
21
21
21
1
21
21
21
21
21
l2
n
b
ar
pr
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ug
p
ct
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ec
Ju
ct
ov
ec
Ja
Ju
Fe
Se
O
M
A
D
M
N
A
O
D
N
Source: ONS BICS
In January 2022, the Fig. 4: SMEs role in the UK economy at the start of 2021
percentage of SMEs who were Percentage share
either highly confident or 100%
confident in their survival was 99.8
84%, with this figure having 90%
reached 85% in October 2021—
80%
the highest level since the start
of the pandemic. 70%
SMEs’ success is crucial to 60%
60.6
the ongoing recovery. SMEs 50%
remain strategically vital 52.0
to the fortunes of the UK 40%
economy; some 99.8% of all
30%
UK businesses in 2021 were
SMEs (Fig. 4).5 Together they 20%
provided more than 60% of
private-sector employment 10%
(and 51% of all employment
0%
when including the public Businesses Employment Turnover
and non-profit sectors), and Source: BEIS
accounted for more than
half of all turnover generated
across the country.
5
BEIS (2021) Business population estimates 2021 11Financing the future: Funding Circle’s 2021 impact
1.2 THE PANDEMIC, AND RECOVERY, CONTINUE TO HAVE AN UNEVEN IMPACT ON SMES
Over the last two years, three Fig. 5: Percentage of SMEs open and trading in 2021
broad groups of SMEs have 100%
emerged. These cohorts of
survivors, hedgers and thrivers 90%
were impacted by, and have
80%
responded to, the disruption
and subsequent recovery in 70%
diverging ways.
60%
Survivors were the SMEs
50% Winter Non-essential All restrictions
most significantly impacted
lockdown retail opens removed
by the pandemic, typically 40%
in England
being forced to pause trading. 30%
While 2021 was a year of
recovery for many businesses, 20%
some restrictions remained
10%
in place through the first half
of the year. These continued 0%
to negatively impact some
21
21
21
21
21
21
21
21
21
21
21
21
businesses— particularly those
n
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ar
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ay
ne
ly
ug
p
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ov
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Ja
Fe
Se
Ju
O
M
A
D
M
Ju
N
A
in the retail or hospitality Source: ONS, BICS
sectors and smaller SMEs—
with 28% of SMEs reported Fig. 6: Percentage of SMEs reporting more than 20% decrease
as closed in January 2021 in turnover compared to normal expectations
(Fig. 5).6 Meanwhile, one-third 35%
of SMEs also reported being 2020-H2 2021-H1 2021-H2
‘very negatively’ impacted by 33
30% 31
the pandemic.7
28
This group of survivors has 25%
25 25
reduced as restrictions eased 24
and the recovery gathered 20%
pace. Between the second 19 19
halves of 2020 and 2021 there 17
15%
was a 48% reduction in SMEs
reporting a significant decrease 13
in turnover (of more than 20%) 10% 11 11
when compared to normal
expectations (Fig. 6). However 5%
some headwinds remain,
with labour shortages, cost 0%
pressures, and rising energy 0-9 10-49 50-99 100-249
prices continuing to build. Source: ONS BICS Number of employees
6
ONS (2022) Business Insights and Conditions Survey (BICS) – Wave 45
12 7
BVA BDRC (2021) SME Finance Monitor (Q2 2021)Financing the future: Funding Circle’s 2021 impact
A second group of hedgers Fig. 7: Percentage of SMEs holding £10,000 or more in
took precautionary measures credit balances
by building up cash reserves. 40%
While not as severely
impacted by the pandemic, 35%
many businesses took 35
33
advantage of government- 30% 31 31
guaranteed lending through 28 29
the Coronavirus Business 25%
Interruption Loan Scheme 23 23 23
(CBILS) and Bounce Back Loan 20%
Scheme (BBLS) to provide
15%
a buffer against ongoing
uncertainty. Approximately
10%
30% of BBLS users took their
loan for financial security, 5%
as opposed to funding
working capital or day-to-day 0%
expenses.8 And, in 2021, the 2018 2019 2020 2020 2020 2020 2021 2021 2021
percentage of SMEs reporting Source: BVA BDRC
Q1 Q2 Q3 Q4 Q1 Q2 Q3
more than £10,000 in credit
holdings reached historically Fig. 8: Percentage of SMEs expecting to increase investment over
high levels of 30%, compared to the next three months
23% in 2019 (Fig. 7). 9 Evidence 35%
suggests this “hedging” had
some impact on business 30%
investment, with BEIS’ Small
Business Survey showing 31% of 25%
SMEs that took external finance
also reported postponing an 20%
investment decision.10
15%
As confidence among SMEs
increased throughout 2021, the
10%
share of SMEs holding high
cash reserves has started to
5%
decrease. The share of SMEs
reporting they had spent all
0%
of their government-backed 18 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21
loan rose to 31% in Q2 2021, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
compared to 22% in Q1 2021.11 Source: Federation of Small Business
A third set of thrivers of 2020, during the past investment intentions have
continued to grow their two years the percentage of continued to rise through the
business and adapt to the SMEs planning to increase last nine months of 2021: one
pandemic’s challenges. their investment over the in three SMEs reported plans
Barring a dip in investment subsequent three months to increase their investment by
intentions as the pandemic has not fallen below around the end of the year.
loomed in the first quarter one-in-four (Fig. 8).12 And
8
National Audit Office (2021) The Bounce Back Loan Scheme: an update
9
BVA BDRC (2021) UK SME Finance Monitor (Q3 2021)
10
Department for Business, Energy & Industrial Strategy (2021) Longitudinal Small Business Survey 13
11
BVA BDRC (2021) UK SME Finance Monitor (Q2 2021)
12
Federation of Small Business (2022) Voice of Small Business Index (Q3 2021)Financing the future: Funding Circle’s 2021 impact
In 2021, this group of thrivers Fig. 9: Percentage of SMEs reporting plans to grow their business
has grown in size. The 60%
share of SMEs intending to
grow has doubled since Q2
50% 52 52
2020, with around half of
49 49
SMEs reporting such plans 45
(Fig. 9).13 These SMEs would 40% 42 41
have used both guaranteed 38
and non-guaranteed lending 30%
in 2021 as the CBILS/BBLS
schemes wound down and the 24
20%
commercial market started
to resume over the second
half of the year. Continued 10%
access to finance will be vital
if their future ambitions are to 0%
be realised. 2018 2019 2020 2020 2020 2020 2021 2021 2021
Source: BVA BDRC
Q1 Q2 Q3 Q4 Q1 Q2 Q3
1.3 POST-PANDEMIC LENDING WILL INCREASINGLY BE ACCESSED ONLINE
In 2021, the SME lending Fig. 10: Gross UK SME lending, 2019-2021
market started to normalise. CBILS from all lenders BBLS from all lenders
While 2020 saw an injection of
new lending, primarily through Banks' and building societies' gross lending to SMEs
BBLS, in 2021 a similar amount £ billions
(£57.7 billion) was lent to SMEs 50
as in 2019 (£56.9 billion).14
However, this lending was
weighted toward the first 40
half of 2021 as the tail-end of
the pandemic loan schemes
concluded (Fig. 10). With 30
lending in the second half of
the year lower than its pre-
pandemic equivalent, there is 20
still some way to go before the
market fully normalises.
10
0
19 19 19 19 20 20 20 20 21 21 21 21
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Bank of England; HM Treasury
13
BVA BDRC (2021) UK SME Finance Monitor (Q3 2021)
14 14
Bank of England (2022) Monthly changes of monetary financial institutions’ sterling and all foreign currency gross lending to
small and medium sized enterprisesFinancing the future: Funding Circle’s 2021 impact
The pandemic has accelerated The proliferation of online
long-standing trends in digital lending is likely to be further
transformation. Lockdown accelerated by embedded
changed how companies and finance. This allows online
individuals work, spend and providers to provide direct
interact with each other. It access to each other’s
forced late-adopters to take up products, to the benefit of
digital technologies for the first the consumer, for example
time, and existing customers through Funding Circle’s new
to ramp up their usage. For embedded finance solution
instance, online transactions which embeds the platform
accounted for more than 30% into partners’ environments
of retail sales in November 2021, through a native application
compared to 22% in November programming interface (API).
2019.15 This is no different for The global market value of
SMEs, with 40% increasing embedded finance is expected
their use of online banking to grow from $43 billion in
services over the last year.16 This 2021 to $138 billion in 2026—a
is echoed by 60% of Funding 215% increase.18
Circle’s 2021 borrowers having
used the platform to access Fig. 11: What first-time online borrowers are likely to do next
finance online for the first time. time they require finance
This shift towards online Approach Funding
lending is here to stay. 78%
Circle first
Approximately two-thirds of
SMEs expect the changes they Approach bank first,
have made as part of this digital then Funding Circle 16%
acceleration to be permanent, if unsuccessful
according to OECD research.17
Further survey evidence Approach other
shows over three-quarters of online finance 3%
Funding Circle’s first-time online provider
borrowers would approach the
Approach other
platform first next time they
non-online 2%
need finance (Fig. 11). finance provider
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: Funding Circle Percentage share
15
ONS (2022) Internet sales as a percentage of total retail sales (ratio) (%)
16
EY (2021) The five-step journey to SME banking transformation
17
OECD (2021) OECD SME and Entrepreneurship Outlook 2021 15
18
Jupiter Research (2021) Embedded Finance Market Value to Exceed $138 Billion in 2026, as APIs Intensify Fintech Competitive LandscapeFinancing the future: Funding Circle’s 2021 impact 16
Financing the future: Funding Circle’s 2021 impact
CASE STUDY:
IN THE WELSH
WIND DISTILLERY
Founded in 2018, the In The Welsh Wind Distillery,
owned by couple Alex Jungmayr and Ellen Wakelam,
implemented expansion plans following the lifting of
Covid-19 restrictions.
In The Welsh Wind Distillery in Tanygroes—a hamlet
north of Cardigan on the west coast of Wales—took off
after opening for business in 2018. But plans for growth
had to be put on hold as the global pandemic hit.
With the lifting of restrictions, founders Alex and Ellen
used a Funding Circle loan to invest in their business
and its growth. They hired 15 people and began to
expand their “grain-to-grass” ethos, using only grain
grown within 10 miles to make their whisky. Able now
to implement their unique distillery model, Alex and
Ellen are also committed to providing training and
jobs and opening up local opportunities. Despite the
increase in online shopping, the couple still purchase
face to face from small businesses. Producing a
product made using local ingredients helps maintain
links to the local landscape and community.
17Financing the future: Funding Circle’s 2021 impact
2. F
UNDING CIRCLE’S 2021
ECONOMIC IMPACT
2.1 FUNDING CIRCLE CONTINUED TO PROVIDE VITAL SME FINANCE IN 2021
Funding Circle started the Fig. 12: Loans originated through Funding Circle
year by continuing to support £ billion
SMEs through the Coronavirus
2.5
Business Interruption Loan
Scheme (CBILS). By the time
CBILS ended in the first half
of the year, Funding Circle’s 2.0 2.1
scheme lending reached £3 2.0
billion, making it the third
largest lender. Through the 1.5
second half of the year, 1.5 1.5
thousands of SMEs continued
1.3
to use the platform to access
1.0
finance through a combination
of the Recovery Loan Scheme
(RLS) and non-guaranteed
commercial lending. In total, £2 0.5
billion of loans were originated
through Funding Circle’s UK
platform in 2021—an increase of 0.0
25% compared to 2019 (Fig. 12). 2017 2018 2019 2020 2021
Source: Funding Circle
2.2 INVESTMENT IN TECHNOLOGY IS REMOVING BARRIERS FOR SMES ACCESSING FINANCE
The borrowing process is Fig. 13: Main reason for borrowing through Funding Circle in 2021
the biggest obstacle to SME
funding. Would-be seekers Simple loan application 32%
of finance cited the process
of borrowing as their main
reason for not applying, survey Fast process 21%
evidence reveals.19 Speed is
also critical; 66% of SMEs felt
Better interest rate/fees 13%
faster access to credit was
very/extremely important for Took too long to apply for/
their business, with nearly obtain a loan with bank 13%
six-in-ten desiring funds within or other provider
seven days.20 And one-third
desired finance in just three Good customer service 12%
days—pointing to the time-
critical nature of SME lending. Only option for an 5%
unsecured loan
Loan application with
bank or other provider 4%
was declined
0% 5% 20% 15% 20% 25% 30% 35%
Source: Funding Circle Percentage share
19
BVA BDRC (2022) UK SME Finance Monitor (Q2 2021)
18 20
EY (2021) The voice of the SME (Banking experiences and expectations)Financing the future: Funding Circle’s 2021 impact
Instant decision lending seconds. 70% of all Funding represented 32% and 21%
technology is addressing this Circle’s UK applications are respectively of respondents.
problem by providing a much now receiving instant decisions. Only 4% of SMEs took a
more seamless borrowing loan through Funding Circle
experience. Introduced by The simplicity and speed of because their application was
Funding Circle in 2020, the Funding Circle’s application declined by another provider.
new technology facilitates an process continue to be cited (Fig. 13).
average application time of six as the two most popular
minutes and provides lending reasons for choosing the
decisions in as little as nine platform. These answers
2.3 FUNDING CIRCLE IS HELPING COMMUNITIES LEVEL UP ACROSS THE UK
Funding Circle’s lending Fig. 14: Value of loans originated per Parliamentary
reaches SMEs in every corner constituency in 2021
of the UK. In 2021, it helped
SMEs located in every one of
the UK’s 650 parliamentary Loans financed
constituencies, an average of
nearly £3 million in lending per £0–£1 m
constituency (Fig. 14). £1 m–£2 m
This helped SMEs to not £2 m–£3 m
just navigate a challenging £3 m–£4 m
business environment, but
also invest in their business, £4 m–£5 m
thrive and create jobs in their £5 m +
local communities. This is
particularly important given
access to finance is at the
heart of the UK’s regional
disparities, and is crucial to
the Government’s Levelling Up
plans.
Source: Funding Circle
19Financing the future: Funding Circle’s 2021 impact
Fig. 15: Funding Circle loans under management as share of total outstanding SME lending
East of England 5.0%
East Midlands 4.2%
South East 3.9%
North West 3.5%
Yorkshire and the Humber 3.3%
West Midlands 3.1%
UK (Total) 3.0%
North East 2.8%
Wales 2.6%
South West 2.4%
Greater London 2.4%
Scotland 1.9%
Northern Ireland 1.4%
0% 1% 2% 3% 4% 5% 6%
Source: Oxford Economics Percentage share
A greater proportion of Looking at specific • Highest rankings of the
Funding Circle’s lending helps communities, Funding Circle English Index of Multiple
SMEs outside of London, loans are most important in Deprivation—a composite
where the probability of a firm Bolton (North West), where indicator covering seven
securing funding is up to 50% the platform’s loans under domains of deprivation:
lower.21 Loans under Funding management are equivalent to income, employment,
Circle management represent 5.3% of the total outstanding education, health, crime,
5.0% of all outstanding SME SME lending.22 This was housing, and living
lending in the East of England, followed by Wigan (also North environment—received 13%
and 4.2% in the East Midlands West) at 5.1%. of Funding Circle’s lending
(Fig. 15). In fact, Funding Circle
lending is over-indexed in the Lending through Funding • Highest unemployment rate
regions identified as having Circle is reaching communities received 13% of Funding
the largest investment gaps in that have experienced Circle’s lending
the Government’s Levelling Up deprivation. A higher
White Paper: the East Midlands, proportion of lending through
• Highest rates of economic
inactivity received 12% of
Yorkshire and the Humber, and the platform went to SMEs Funding Circle’s lending
the West Midlands. located in local authorities
experiencing socioeconomic
challenges (Fig. 16).23 In 2021,
businesses located in the top
10% of local authorities with the:
21
All-Party Parliamentary Group (APPG) on Fair Business Banking (2021) Scale up to level up
22
Data sourced from UK Finance SME lending within UK postcodes
20 23
HM Government (2020) English indices of deprivation; ONS (2021) Local labour market indicators by unitary and local authority;
Business demographyFinancing the future: Funding Circle’s 2021 impact
Fig. 16: Share of Funding Circle’s 2021 lending to local authority districts experiencing
socioeconomic challenges
Percentage share Proportion over-indexed
14%
13% 13%
12%
12%
10%
8%
6%
4%
2%
0%
English Index of Multiple Unemployment rate Economic inactivity rate
Deprivation (highest 10%) (highest 10%) (highest 10%)
Source: ONS; Oxford Economics
Funding Circle’s lending is Fig. 17: Funding Circle customers’ workers’ gross value added
supporting highly productive per job versus national averages
businesses. Improving £80,000
productivity is a key objective
of the Government’s Levelling £70,000
Up strategy—the first mission of
£69,300
which is to boost productivity
£60,000 £63,700
and pay. Businesses who
received funding through
Funding Circle were on average £50,000
9% more productive (as
measured by gross value added £40,000
per head) than the national
average in 2021.24 £30,000
£20,000
£10,000
£0
UK average Funding Circle customers
Source: Funding Circle, ONS
24
The gross value added per worker averages are calculated using ONS data on total gross value added (GDP output approach
– low-level aggregates data set) and total employment (Labour Force Survey); Funding Circle customers’ gross value added per
worker calculated from Funding Circle survey 21Financing the future: Funding Circle’s 2021 impact
2.4 FUNDING CIRCLE’S ECONOMIC IMPACT
At the end of 2021, we by Funding Circle customers’ loans supported a £2.4 billion
estimate the loans under procurement from their UK contribution to UK GDP and
Funding Circle’s management supply chains. In this case, we sustained 35,000 jobs across
supported a total contribution estimate these SMEs spent £1.1 the country, as well as some
to UK GDP of £7.2 billion and billion on purchases of goods £660 million in tax revenues.
more than 103,000 jobs. We and services from UK suppliers
also calculate that £1.9 billion in using their Funding Circle loan. Our results point to
associated tax revenues were This significant spend supported consistency in the scale of
supported by lending through a £1.0 billion contribution to Funding Circle’s economic
the platform. This economic GDP and 17,100 jobs, alongside impact. Compared to our
activity was generated through £240 million in tax revenues to 2020 report, its economic
three key channels: the UK Exchequer. contribution to GDP (then £7.6
billion), employment (then
Lending through Funding In addition, lending through 102,300), and taxes (then
Circle is estimated to have Funding Circle supports £2.1 billion) remain consistent.
directly supported a £3.9 further economic activity, This means Funding Circle’s
billion contribution to UK GDP as its customers’ employees economic footprint remains
and 51,200 jobs. Calculated and those employed in their far larger than in recent years,
by scaling up the results of UK supply chain spend their with growth of 75% in its
Funding Circle’s UK SME wages. This is known as the contribution to UK GDP, and
survey, we estimate Funding “induced impact”. We estimate 45% in the total number of jobs
Circle customers generated wage-induced spending supported by its lending, when
£62.3 billion in annual revenues attributable to Funding Circle compared to our 2018 report.
in 2021, and 8.2% of this can
be apportioned to their loans Fig. 18: Total economic impact of Funding Circle in the UK, 2021
through the platform, based £ billion per annum Headcount, thousands
on the loans’ share of these
8.0 120
companies’ liabilities. Of this
7.2
loan-related revenue, the firms’ 103,300
employment, capital costs 7.0
Induced 100
and net profits accounted for
some £3.9 billion—known as 6.0 2.4 Indirect
35,000
the ‘direct’ contribution to 80
Direct
GDP that is attributable to 5.0
the loans through Funding 1.0
Circle. In addition, we calculate 4.0 17,100 60
51,200 jobs and £1.0 billion in
tax revenues were also directly 3.0
supported by these loans. 40
1.9
2.0 3.9
51,200
But the economic impact of 0.7
20
the lending through Funding 1.0 0.2
Circle extends beyond its 1.0
direct contribution to the 0.0 0
UK economy. We calculate GDP Tax Jobs
the “indirect impact”, which (left scale) (left scale) (right scale)
captures the activity stimulated Source: Oxford Economics Note: totals may not sum due to rounding
22Financing the future: Funding Circle’s 2021 impact
CASE STUDY: JUST STRONG
Just Strong “athleisure” brand was launched by personal trainer Mark
Robinson from his garage in 2017. A government-backed Funding Circle loan
helped Mark to grow his business.
Back in 2017, Mark Robinson noticed Loan Scheme (RLS). Supporting the
how gym-goers were particularly loyal business’ expansion plans, the loan
to small American brands. Inspired helped Just Strong increase capacity
by UK phenomenon Gymshark, he and drive up sales.
decided to enter the fashion industry,
printing and packing “athleisure” The company now operates out of a
clothes from his home in Yorkshire. In 10,000 sqft warehouse, employs 23
2021, as more women began wearing people and ships to over 110 countries
“gym gear” while working from home, around the world. During 2021, Just
orders began to accelerate. Strong’s turnover doubled, with
the company reaching a landmark
To meet increased demand, Just 200,000th order in just four years.
Strong required additional funding. The label also has a strong presence
Mark turned to Funding Circle, and on social media, including more than
Just Strong became the first small 350,000 Instagram followers.
business to benefit from a Funding
Circle loan through the Recovery
23Financing the future: Funding Circle’s 2021 impact
3. FUNDING THE RECOVERY
3.1 SME INDEBTEDNESS HAS RISEN, BUT IS CONCENTRATED IN THE SMALLEST SMES AND
OVERALL DEBT LEVELS REMAIN STABLE
The vast majority of the Fig. 20: Percentage of SMEs with high debt-to-cash ratios
new lending created during 35%
the pandemic went to the
smallest SMEs. Section 1.3 of 30% 33%
this report covered how the
increase in lending volumes
25%
to SMEs was driven almost
entirely by BBLS. Some 90%
of the total number of these 20%
loans, or 85% of the total
value (£39.7 billion), went to 15%
micro-businesses: defined as 14%
those with turnover below 10%
£632,000 (the average
Funding Circle customer has a 5%
turnover of £1.4m).25 Another
14% of the total value of loans 0%
(£6.8 billion) went to small Pre-covid Post-covid
businesses with a turnover Source: Bank of England
between £632,000 and £10.1
million (Fig. 19). Although this has raised As a result, concerns about
SME debt levels, they remain repayments remain low.
Fig. 19: The value of BBLS loans manageable. While the The percentage of SMEs
received by size of business majority (55%) of SMEs hold no concerned about their
£ billion debt at all, the proportion with ability to pay their debt has
a high debt-to-cash ratio has continued to decrease through
Other risen from 14% pre-pandemic 2021, with only a fraction of
293 to one-third (Fig. 20).26 This SMEs reporting low confidence
1% corroborates with the share in their ability to repay loans
Small
of survivor SMEs discussed in (Fig. 21).
6,805
section 1.2 that were forced
14%
to pause trading, and report Other SMEs continue to hold
being ‘negatively’ or ‘very onto their precautionary cash
negatively’ impacted by the reserves. Bank of England
Micro
pandemic. The Bank of England evidence reveals some 32%
39,654
notes this debt is likely to be of indebted SMEs have
85%
manageable for the majority of sufficient cash to repay their
these businesses, pointing to outstanding debt in full if they
most loans being government- wanted.27 This is in line with
backed with longer terms, lower the share of hedger businesses
rates, and support through pay- identified in chapter 1.2.
Source: NAO
as-you-grow options.
25
National Audit Office (2021) The Bounce Back Loan Scheme: an update
26
Bank of England (2021) Bank Overground: The impact of the Covid pandemic on SME indebtedness
24 27
Bank of England (2021) Bank Overground: The impact of the Covid pandemic on SME indebtednessFinancing the future: Funding Circle’s 2021 impact
Fig. 21: The share of SMEs with low or no confidence in their ability to meet current debt
obligations has decreased
7%
0–9 employees 10–49 employees 50–99 employees 100–249 employees
6%
5%
4%
3%
2%
1%
0%
Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021
Source: ONS BICS
3.2 FOR THE BROADER SME POPULATION, FINANCE WILL BE VITAL IF THEY ARE TO INVEST,
GROW, AND POWER THE UK ECONOMY
SME growth aspirations Fig. 22: SME growth ambitions for the next 12 months
are on the rise. Through all Grow rapidly/ Remain the Downsize, close or
of 2021, more than half of moderately same size hand on business
SMEs reported an intention
to grow over the subsequent Percentage share
12 months, a significant 60%
improvement on the 31%
reported in Q2 2021 (Fig. 22).28
50%
The share of businesses
with negative intentions (to
downsize, close, or sell their 40%
business) has also fallen to
11.9%, from a pandemic-driven
high of 27.9% in 2020. 30%
Indications that demand
for SME finance is likely to 20%
strengthen over the coming
months can also be observed
10%
in the number of SMEs happy
to use finance to grow (Fig.
23). This has risen again in 0%
Q3 2021, following growth 18 18 18 18 19 19 19 19 20 20 20 20 21 21 21 21
throughout 2020, and is now Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
at its highest level since 2016. Source: Federation of Small Business
28
Federation of Small Business (2022) Voice of Small Business Index (Q3 2021) 25Financing the future: Funding Circle’s 2021 impact
Fig. 23: Share of SMEs happy to use finance to grow
Percentage share
40%
38%
36%
34%
32%
30%
28%
26%
24%
22%
20%
2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Source: BVA BDRC
Investment intentions are Access to finance will continue Online lending platforms will
expected to remain strong. to be crucial throughout 2022. help deliver this finance. By
Some 76% of SMEs said they The data suggests a significant leveraging their technology
were planning to invest more proportion of the UK’s SMEs are capabilities and focusing on
in their business in 2022 than ready to play a leading role in serving small and medium
they had in any previous year.29 maintaining the UK’s economic businesses, platforms like
In addition to a recovering recovery. Simple and fast access Funding Circle will be able
economy and gradual return to finance will continue to be to provide seamless and fast
to normalisation, investment the catalyst for SMEs to unlock access to this finance, helping
will be encouraged by further the investment required to break down some of the barriers
government measures, achieve this, and in turn power to ensuring UK SMEs are able to
including the super-deduction, communities across the UK. maximise their potential.
which will allow companies to
cut their tax bill by up to 25p Fig. 24: SMEs expectations for future financing needs
for every £1 they invest between Percentage share
April 2021 and March 2023.30 40%
Funding Circle’s customers are 35%
35%
no different. Three-quarters of 30%
SME respondents expected to
25%
need more finance in the future, 25%
with 40% expecting to need 20% 22%
this within the coming year 15% 18%
(Fig. 24). And of these SMEs,
86% expect to use this funding 10%
for investment and growth. 5%
0%
No current 3–6 months 6–12 months More than
plans for 12 months
further finance
Source: Funding Circle
29
Starling Bank (2021) Record investment and strong growth planned by small businesses, but loneliness and innovation are a challenge
26 30
HM Treasury (2021) Budget 2021 – Super-deductionFinancing the future: Funding Circle’s 2021 impact
CASE STUDY 3:
FLOWER STATION
UK florist Flower Station creates hand-crafted bouquets. Its Director and
Founder, David Cohen, used his Funding Circle business loan to launch new
brands and grow his business.
David set up Flower Station over 20 such as weddings and office plant
years ago as a drive-through florist at contracts. He also began providing
a disused petrol station. He now runs guaranteed same-day delivery on
several flower shops, with a flagship orders up to 6p.m. in London.
store in North London providing a
24/7 delivery service to customers all The company used a Funding Circle
over the capital. loan to support these expansion
activities and develop new brands–for
During lockdown, with his stores example, its new Love Rose website,
having to close, David pivoted the which sells high-end preserved roses
company’s operations online. As a and Letterbuds—a subscription
result, business quadrupled, more than service for home-delivered budded
making up for Flower Station’s shop flowers. The funds also enabled the
closures. David put as much money completion of an online flower school,
as he could into his online operations which provides video lessons on
and branched out into new services, flower arranging.
27Financing the future: Funding Circle’s 2021 impact
APPENDIX: METHODOLOGY
ESTIMATING THE ECONOMIC IMPACTS
In December 2021 a Direct impacts The gross operating surplus
proportion of Funding Circle’s was then used to estimate
The direct “gross value added”
small business customers the size of each company’s
contribution to GDP of these
in the UK were asked to balance sheet (i.e. its net value
respondents was taken to be
complete a survey about their plus all outstanding liabilities),
the difference between their
loans and business. To enable using a balance-sheet-to-
2021 revenues and the value
Oxford Economics to carry gross-earnings multiple of
of their purchases from other
out the economic impact three. This ratio was chosen
firms that year. Their direct
study for this report, survey as being within the various
employment was taken straight
respondents were asked about ranges recommended by
from the survey answers.
their company’s latest annual experts in the field—although
revenue, purchases from it is towards the lower end of
The “Funding Circle share”
other firms, share of imports the scale, to reflect the small
of those values then had to
in those purchases, and size of the firms involved. The
be calculated. Each company
employment levels. ratio of each firm’s Funding
that responded to the survey
Circle loan to its estimated
was matched with its record
balance sheet size was then
in Funding Circle’s entire loan
used to scale down from total
book, as adjusted to capture
direct value and jobs, to the
only loans under management
share supported by Funding
and not in default at the end
Circle’s financing.
of 2021. This enabled the value
of the company’s outstanding
The gross value added and
loan, and industrial sector, to
employment impacts for the
be identified.
sample of firms surveyed were
then scaled up, to arrive at
The industrial sector was
impacts for the entire Funding
used to split each firm’s value
Circle loan book. Revenues,
added between employment
purchases from other firms,
costs and the “gross operating
and business taxes paid were
surplus” (i.e. capital costs
also scaled up in the same
plus net profits—equivalent to
way. Direct tax contributions
earnings before tax, interest,
of all kinds were worked out
and depreciation in company
from direct gross value added,
accounts). This required
using various tax-to-income
sector-by-sector data from the
and tax-to-spending ratios
national accounts, adjusted
derived from national accounts
to be more specific to smaller
and tax authority data.
firms by taking into account
relevant ratios from national
statistical agencies’ data.
28Financing the future: Funding Circle’s 2021 impact
Indirect and induced impacts The pattern of procurement The results show the economic
from domestic suppliers, contribution supported by
Next, the indirect and induced
excluding imports, was then lending through Funding Circle
impacts were calculated. The
fed into Oxford Economics’ per annum, based on all loans
pattern of firms by industrial
economic impact models, under its management at
sector, both in the survey and
which are based on the the end of 2021. They are not
across the entire loan book,
entire pattern of transactions cumulative, so do not show the
was reasonably similar to that
between industrial sectors (as economic impact of Funding
of the wider business sector,
found in an input-output table). Circle since its creation.
excepting the relative absence
The direct employment costs
of mining and energy firms.
of Funding Circle’s borrowers
The pattern of economy-
were also fed in. The indirect
wide procurement found
and induced gross value added,
in the official “input-output
employment, and tax impacts
table”, by type of product
were then calculated within the
purchased and domestic-
model, which also incorporates
versus-imported supplier split,
the latest gross value added-
was therefore adjusted to
to-jobs, tax-to-income, and tax-
exclude non-business entities,
to-spending ratios, on a refined
and mining and energy firms,
industry-by-industry basis.
and applied to our estimate of
Funding Circle borrowers’ total
purchases from other firms. The
share of imports in that total
was checked against the share
indicated by the survey results,
and found to be very similar.
29Financing the future: Funding Circle’s 2021 impact
OXFORD ECONOMICS
Oxford Economics was founded in 1981 as a March 2022
commercial venture with Oxford University’s
business college to provide economic All data shown in tables and charts are
forecasting and modelling to UK companies Oxford Economics’ own data, except where
and financial institutions expanding abroad. otherwise stated and cited in footnotes, and
Since then, we have become one of the are copyright © Oxford Economics Ltd.
world’s foremost independent global advisory
firms, providing reports, forecasts and This report is confidential to Funding Circle
analytical tools on more than 200 countries, and may not be published or distributed
250 industrial sectors, and 7,000 cities and without their prior written permission.
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Headquartered in Oxford, England, with of those data will affect the assessments and
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30Financing the future: Funding Circle’s 2021 impact
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