Funding Circle sees profits fall to £1.6m after Covid loan schemes end
Funding Circle’s pre-tax profits crashed to just £1.6m in the first half of 2022, after government-backed loan schemes in the UK and the US came to an end.
This is a 95 per cent year-on-year decline from £35.4m recorded in the first half of 2021, when the alternative lender was benefitting from strong demand for loans from struggling businesses during the pandemic.
Originations fell by 51 per cent to £803m over the same period.
The firm had participated in both the coronavirus business interruption loan scheme (CBILS) and the bounce back loan scheme in the UK, and the Paycheck Protection Program (PPP) in the US.
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Despite the results, the London-listed firm’s share price rose by more than six per cent in morning trading, as the £1.6m pre-tax profit beat analysts’ expectations of a £12.4m loss.
Funding Circle trimmed its full-year income outlook by £15m to the range of £140m to £155m. It attributed this to “a prudent approach to the uncertain macro environment in the second half of 2022”.
However, the firm reaffirmed its guidance for 2025 and highlighted the progress made in its medium-term plan to evolve into a multi-product platform, including a move into embedded finance.
It also noted “resilient” investor returns through the platform, with recent cohorts expected to deliver five to seven per cent returns. It said it has refined its credit model to maintain a prudent approach to originations, and has adjusted borrower pricing to reflect the rising base rate environment.
It said it continues to see investor demand to fund its loans and anticipates adding new investors in the second half.
“In the last six months, we have made early progress on all three of our strategic pillars to transform the business into a multi-product platform,” said chief executive Lisa Jacobs (pictured). “We are attracting more businesses, saying yes to more businesses and entering new product categories to enable small businesses to not only borrow with Funding Circle, but pay and spend as well.
“We are well prepared to manage the business through the challenging macro environment and are confident in our ability to help small businesses do the same. With our market-leading technology, which continues to deliver a superior customer experience, we remain well placed to deliver on our mission to help more small businesses get the funding they need to win.”
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As part of its updated business strategy, Funding Circle has launched two lending as a service partnerships in the US and has been developing an embedded finance solution in the UK.
It said that FlexiPay – its new buy-now-pay-later product for businesses – had generated £17m of originations in the first half of 2022. A beta launch for a FlexiPay card is on track for the fourth quarter of 2022 in the UK.
