Funding Circle UK became profitable in the second half of 2020, thanks to a boost in small business lending and reduced operating costs.
In full-year financial results issued earlier today, the peer-to-peer lending platform announced that Funding Circle UK made an operating profit of £21.3m in the second half of last year, while the Funding Circle group made a profit of £7.2m over the same time period.
The group’s earnings reached £20.3m for the second half of the year, beating the platform’s own estimates that revenue for the last six months of 2020 would be “no lower than £15m”.
The strong second-half profits meant that the Funding Circle group made an overall loss of £106m for the entire year.
Across the whole of 2020, Funding Circle’s loans under management grew by 13 per cent, year-on-year, to reach a record £4.2bn.
Loan originations were up by 17 per cent on the previous year, to reach £2.7bn, thanks to an acceleration in the shift towards online in small business lending.
The company also reduced its operating expenses, with cost management initiatives leading to a 12 per cent reduction in expenses between the first and second half of 2020. Marketing expenses were cut from 42 per cent of operating income in 2019, to 30 per cent in 2020.
According to Funding Circle’s analysis, by the end of 2020 half of all UK loans were fully automated, with the average application taking just six minutes.
The FTSE-listed company also revealed that it had approved loans for approximately 27 per cent of the UK-government backed coronavirus business interruption loan scheme (CBILS), making it the third largest CBILS provider.
In the year ahead, Funding Circle said that it intends to focus on machine learning capabilities and core loans for borrowers that do not require a guarantee.
“Looking ahead, Funding Circle is well-placed to capture the enlarged opportunity from the transition to online borrowing,” said Funding Circle in its full-year financial report.
“The group’s long-term target is to automate 80 per cent of its loans while also rolling out further technological solutions to help small businesses.”
The platform hinted at a roll-out of new products such as a credit card for borrowers, new strategic partnerships, and an application programming interface (API).
“[Loans under management] and originations over the full year will depend on how quickly the economy recovers in the UK and US,” Funding Circle added.
“Trading has been strong since the start of 2021. As we transition to operating our core loan product alongside government guarantee programmes in the UK and US from [the second quarter of] 2021 onwards, we expect some initial reduction in lending.”