Company Acquiring Funding Circle USA Had Previously Acquired Knight Capital and Assets of Fountainhead

iBusiness Funding, LLC, which is acquiring Funding Circle’s US arm, is no stranger to the small business finance industry. That’s because the company not only acquired select assets of Fountainhead SBF LLC last year, but its parent company, Ready Capital, had also acquired Knight Capital in 2019.

Ready Capital, a non-bank SBA lender, had also been one of the largest PPP lenders in the country during the pandemic. The designation of being an SBA lender is a highlight in the acquisition of Funding Circle because it means it does not need Funding Circle’s SBLC license to do SBA loans. Funding Circle had faced hostility by members of congress earlier this year for exploring a sale of its business only after it had lobbied for and finally secured an SBLC license. Now the matter is moot.

“As the Ready Capital group already holds an SBLC license, Funding Circle has, with SBA consent, surrendered its SBLC license,” the announcement by Funding Circle said. “The transaction is expected to close by the end of June.”

It was a share purchase agreement for a total cash consideration of £33 million ($42 million) which includes all of the company’s loan portfolios.

Funding Circle CEO Lisa Jacobs said, “We are pleased to have reached an agreement with iBusiness Funding, one of the leading processors of loans to US small businesses. In iBusiness, we have found a partner that shares in our mission, and we look forward to seeing the success of the combined entity.”

Ready Capital CEO Thomas Capasse said, “We’re excited to acquire FC USA and expect the acquisition to yield meaningful revenue and earnings to the combined company in the years to come.”

Founder and CEO of iBusiness Funding LLC Justin Levy said, “We are thrilled to welcome the exceptional FC USA team to the iBusiness family. FC USA’s mission to be the largest SBA lender for loans under $500,000 aligns with our goal to support underserved borrowers, the only difference is iBusiness achieves this goal through many SBA-approved lenders in our network.”

Funding Circle US Originated $259M in 1st Half of 2023

Funding Circle’s US arm originated $259M worth of business loans in the first half of 2023, up from $214M in the previous half. Those loans are funded “through forward flow agreements with institutional investors.”

The company’s recently filed financial statements say that US loans are “showing good growth.” And it’s with top tier borrowers to boot. It referred to 32% of its first half loans as being “super prime.”

AEBITDA was negative but that’s due to its planned investment to scale the business, the company said.

Yields on their US Loans averaged 5.8%, up from 4.4% over the same period last year.

The company’s newer product “Flexipay” was highly touted in its first half financials. Flexipay works like a line of credit. Once approved for a line, you provide invoice details to Funding Circle and they’ll make a secure payment in your name.

“We’ve seen good growth in US Loans and FlexiPay is showing great momentum as we expand our offering to access a larger market and serve more of our customers’ needs,” said company CEO Lisa Jacobs.

Funding Circle US Originates $168M in 1st Half of 2022

Funding Circle’s US arm originated $168M worth of small business loans in the first two quarters of 2022.

“In the US, we continued to offer our commercial loan product during the six months to June 2022 and we have expanded this offering to serve super-prime businesses,” the company said in its latest financial disclosures.

Notably, Funding Circle closed funding deals with four banks and credit unions during the period and anticipates adding new investors as the year continues.

Globally, Funding Circle says it has helped 130,000 small businesses access $19.4B in funding since inception.

“Lending investor returns through the platform remain robust and attractive,” the company said on LinkedIn. “We’re making early progress against our medium-term plan to transform the business into a multi-product platform, as we continue to help more small businesses get the funding they need to win.”

Funding Circle’s Originations Have Slowed Dramatically in The US

Funding Circle’s US originations fell significantly in 2021 versus the previous two years, the company’s latest year-end report revealed. US originations were only £316M in 2021, of which £224M was PPP funding. That £92M in non-PPP funding was a massive drop from the £619 in 2019, for example.

Funding Circle attributed the reduction in demand to the ending of government stimulus programs.

“The US has a fragmented SME lending market,” the company stated in its full-year report. It estimated that 89% of all SME lending was done through banks and only 10% through specialty finance providers.

Funding Circle’s loans have small margins. The company projects annualized returns of only 5-7% on its US-originated non-PPP loans. Meanwhile, annualized inflation in the US by comparison is currently trending at 7.9%.

Funding Circle also announced its exit from the peer-to-peer lending model. According to the Financial Times, Funding Circle CEO Lisa Jacobs said of it: “There’s been a big shift; the industry has shrunk severely.”