Funding Circle, which has arranged more than £100million of lending to firms since it launched less than two years ago, said that it is dealing with several cases of firms forced to wait months to receive funding because of hold-ups by high street banks.
The problems arise when firms raise more than £100,000 through the company as when the loan is accepted a charge is registered by Funding Circle at Companies House.
In most cases, firms will already have a charge, typically from a major bank, which means that the business has to get permission from the existing charge-holder to enter a new loan agreement.
As the first charge lender, banks will often ask for a deed of priority, a legal document that ranks creditors if there is a default, thereby safeguarding their own investment, however Funding Circle says that in many cases the banks are delaying the process by getting lawyers involved unnecessarily, or demanding bespoke negotiations for each case rather than using standard procedures.
It also says that some banks are charging firms £1,000 to £2,500 to draw up deeds of priority, and in the worst cases, Funding Circle said that banks have refused outright to draw up such deeds, effectively blocking firms from borrowing through the website, which unites crowds of investors with companies seeking the funds they need to grow.
Funding Circle says that it can pay out money within ‘two to three weeks’, but bank delays mean that the process can take months.
Andrew Mullinger, co-founder of Funding Circle, said: ‘Businesses want speed and certainty when they apply for finance and that’s what we do, but these delays are damaging that. We want to see a standard process in place and a standard turnaround time for dealing with documentation.’
One Funding Circle applicant, who did not want to be named, said he had been waiting five months for his bank to give the go-ahead to Funding Circle on his £120,000 loan after he made a successful application last December.
He said: ‘We have worked really hard to grow, but the bank stalling on this has caused real problems. We need the cash upfront to buy properties in a project we are involved in, but despite the loan being approved in December through Funding Circle, we are still waiting.’
A spokesman for the British Bankers’ Association said: ‘The banks are looking into these issues and we are happy to talk with Funding Circle to resolve this.
‘There is a standard process for handling deeds of priority that is normally completed promptly. But sometimes the request may be very specific, requiring a tailored approach, which takes longer.’