Out-Law News 2 min. read

Lancashire council plans to invest directly in local businesses through 'crowdfunding' platform


A local authority in England has joined a 'crowdfunding' scheme through which it will lend money directly to local businesses. 

Lancashire County Council said it had pledged an initial £100,000 to part-fund investment in local businesses via a partnership with Funding Circle, a company that provides an online marketplace for investors to select businesses to lend money to. 

Through the scheme the investors "compete" to invest in businesses at an interest rate that suits them, with funding available to businesses "in a matter of days compared to up to three months for a traditional bank loan," the local authority said. 

The Council said that it expects to make a "multi-million pound commitment" to lend to businesses through the scheme in the next five years.

"As part of the partnership, Lancashire Council will fund approximately 20% of a loan to a local business," the Council said in a statement. "Funding Circle works by enabling established and creditworthy businesses to borrow money from groups of people. Once businesses pass the credit assessments by Funding Circle’s team of underwriters, their loan is posted on the marketplace. From here, investors choose which type of businesses to lend to, and bid the amount of money they wish to lend, and the interest rate they want to earn. Investors bid small amounts, from as little as £20, on lots of different businesses to spread their risk."

The Council described the scheme as a "blueprint for the future of small business lending across the UK" and said it would help local businesses to grow and employ more staff. 

"This is a ground-breaking new way to fund business growth and a first for any council in the UK," Councillor Michael Green, Lancashire County Council's cabinet member with responsibility for economic development, said. "This approach to business funding has proved popular in other parts of the country and across the globe. It's directly supported growing businesses and created new jobs." 
"Working with Funding Circle, our aim is to unlock more of this potential.

Lancashire County Council is determined to show that the county is open for business," Green added.

The Council said that there are 52,000 small businesses in Lancashire that provide employment to more than half of those people employed in the area's local private sector. However, banks have been reining in their loans to businesses in the area, according to statistics from the British Bankers' Association, it added.

"A recent study by Funding Circle indicated the potential economic boost that could be unlocked through better access to finance, with 42% of small businesses in the North West stating that they would increase staff numbers if they could obtain finance," the Council said. "By contrast, according to figures from the British Bankers Association, loan facilities in the region fell by 30% between Q1 and Q2 of this year."

Funding Circle's co-founder, James Meekings, said businesses can benefit from its investment scheme. 

"In today’s economy, businesses want to access finance quickly with minimal disruption to their businesses," Meekings said. "This new partnership will free local businesses from the shackles of the high street banks so that they can continue to grow and fulfil their potential."

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