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Funding Circle shares crash as small UK firms stop investing

Tom Belger
Finance and policy reporter
Close-up of logo for peer-to-peer lending company Funding Circle on paper. Photo: Smith Collection/Gado/Getty Images

Small business lender Funding Circle (FCH.L) released a profit warning the same day a leading trade body said small firms are putting off investing due to Brexit uncertainty.

Funding Circle said on Tuesday that economic uncertainty is hitting demand for small business loans.

“The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria,” Samir Desai, chief executive and co-founder of Funding Circle, said.

Tuesday’s warning came as the Federation of Small Business (FSB) said small firms are struggling to expand. The scale of Brexit uncertainty makes it “impossible” to invest in the future, according to the FSB.

More than seven in 10 firms said they did not expect to raise capital spending in the next quarter, the FSB said. That was the highest figure in two years.

The FSB said the current standstill over Britain’s path to Brexit has left small firms “hamstrung” and struggling to expand, hire, and increase productivity.

The FSB survey also suggests growing caution among lenders. More than four in 10 of the FSB’s member firms said new credit was “unaffordable,” the highest level in more than four years.

Funding Circle is tightening its lending criteria in response to the lending slowdown, the company said.

As a result of the lending slowdown and tightening of criteria, Funding Circle said full-year growth is now set to be around 20%, against a previous guidance of 40% growth.

Shares in Funding Circle fell by 25% at the open in London but have since recovered. Funding Circle is down 16% to 139.40p at 9.55am UK time.

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“It’s impossible for small business owners to invest for the future when we don’t know what the future holds,” Mike Cherry, national chair of the FSB, said in a statement.

“Lifting productivity among the smaller firms that make-up 99% of our business community is a must. But until we have the political certainty that enables us to take risks and innovate, achieving that goal will remain elusive.”

A Brexit campaigner outside parliament. Photo: Press Association

Cherry took aim at Conservative leadership rivals Boris Johnson and Jeremy Hunt, who have talked up their willingness to lead Britain out of the EU without a deal.

"We urgently need to see both prime ministerial candidates spell out their plans for supporting small firms and securing a pro-business Brexit — one that encompasses a comprehensive deal and a substantial transition period,” he said.

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“Fast and loose talk about accepting a chaotic no-deal Brexit in four months’ time is not helpful.”

Cherry said it was “understandable” lenders are more cautious, suggesting they are continuing to offer credit but upping premiums to cover perceived increases in risk.