Funding Circle, the online marketplace for small business loans, is set to allow property developers get funding through them in the future. The move comes after a tightening of credit by banks, which have been told to shore up their capital reserves and show caution when it comes to lending to homebuyers. With fears about a property bubble growing in the UK capital, plus The Bank of England withdrawing household mortgages from its Funding for Lending programme, Funding Circle seems as if it’s set to fill the gap. The peer-to-peer lender plans to allow customers to lend to small and medium-sized developers and investors, looking for between £100,000 and £3 million to build or refurbish property.
This is all good news for the modest investor looking to refurbish properties in their portfolio to sell on at a later date. This fast, efficient and effective service would finance both residential and commercial landlords, as well as provide mortgages for businesses. The company manages to keep default rates low due to minimum overheads and efficient technology, creating a leaner, less complicated model of finance. Funding Circle could see a lot of smaller developers gaining the confidence to try to gain funding – particularly with the banks’ lack of willingness to invest in and finance smaller projects
With property booming in price, especially in Central London, this new way of lending could be an amazing opportunity for property developers to invest in properties that have good prospects for profitability. Funding Circle insists it’s very fussy in terms of what projects it takes on – although it’s still up to the lender to make the ultimate decision and ensure they spend their money wisely. With more and more innovative methods of lending springing up to offer alternative finance options where the banks are restricting access to funds, the options for property developers is not just limited to the old methods of financing. However, Funding Circle has been criticised by some who claim that they’ve stepped away from their original motive: to fund small business investment in a tough business climate.
We’ll have to wait and see as to how this plays out for small-time developers. However, the fact that Funding Circle is expanding into this field is likely to start an ongoing trend in alternative financing for property.
Thanks to Paramount Properties, an estate agents in West Hampstead for this guest post.
Thumbnail image: freedigitalphotos.net
