EIB to provide leverage to Funding Circle fund?

By Ryan Weeks on Friday 18 March 2016

Alternative Lending

More market rustlings about a potential collaboration between Funding Circle and the European Investment Bank are afoot.

We first learned of this potential tie-up in September 2015, when the platform stated that it was “actively engaged” in discussions with the European Investment Bank (EIB) about a project to channel funding in the UK SMEs. The Funding Circle SME Income Fund successfully raised £150m in late November 2015 via an IPO on the London Stock Exchange. The platform announced then that it was talking to the EIB about “securing a financing facility”.

The Funding Circle SME Income Fund issued an update on its involvement with the EIB this morning, confirming much of what we already know – that the two entities are in discussion about working together on “a financing project”. A timeline has now been attached to events. The project, if approved, is slated to complete in the second quarter of 2016. Exact details on what the project will look like were not disclosed. There was, however, a glaring hint: 

“The directors are of the view that the arrangements, if successfully completed, can be expected to assist the Company in achieving the total return target specified in the Prospectus of 8-9% per annum once leverage is in place in accordance with its stated investment policy.”

The Funding Circle SME Income Fund may apply leverage of up to 25% of the value of its assets under management. Based on this morning's update, the EIB looks to be the most likely provider of that leverage. For context, other Closed End Funds within the marketplace lending space – such as P2PGI and VPC’s Specialty Lending Investments – may obtain leverage of up to 150%. 

We don’t expect another update on this matter until the intended transaction has closed. 

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