Business investors looking for a higher return on their cash are looking at crowdfunding websites pay interest rates at triple or more than those offered by the banks.
Crowdfunding is the buzzword for a group of small investors putting their cash together to fund a specific project.
Many crowdfunding sites are aimed specifically at media, gaming and film creative projects, but another web site for small investors is looking at general business proposals.
Funding Circle is returning an average gross yield on loans of 8.3%.
The site has more than 15,000 members with an average £5,230 in their accounts ready to lend to businesses.
Total lending through the site adds up to more than £50 million, with an average loan amount of £39,332.
Bad debts make up 0.3% of the loan book – and so far, more than 700 businesses have picked up badly needed cash through Funding Circle.
Businesses can borrow up to £500,000 in single or multiple loans.
To protect investors, businesses borrowing more than £100,000 must provide security in the form of a saleable asset or property.
Funding Circle is backed by Index Ventures, a venture capital firm that has stakes in successful companies like Betfair, Skype, Mysql, Playfish, Lastfm and LoveFilm.
“It is great to see so many people across the UK lending to small businesses: there are now over 15,000 investors on Funding Circle. We’re seeing hundreds of people join every week, unlocking their savings to help British businesses grow,” says the Funding Circle web site.
Banks not lending
“You’ll see larger loans on the marketplace over the coming months and here are some key points. As we grow we will continue to increase the investment opportunities available to our members – and in the process become a bigger and better part of lending to businesses. With bank lending continuing to decline, we hope you all agree that’s a great thing.”
Investors are often small businesses that have experienced funding problems themselves.
“I used to run a small business, so I liked the idea of lending to businesses. I know many are having a tough time at the moment with the banks not lending, so it’s good to be able help in this way. I started with £500, but was quickly impressed and topped it up to £10,000 and I’m now getting an average gross yield of 9.5%,” said Mark Barry-Jackson, 63, from Surrey.