Funding Circle cuts revenue projection amid sharp decline in U.S. lending

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Concerns about the American economy’s staying power are creeping into small-business lending.

Funding Circle, a U.K.-based lending platform that also operates in the U.S., Germany and the Netherlands, said Tuesday that it has tightened its loan criteria. In addition, the firm sharply curtailed its projection for revenue growth after loan originations fell in the second quarter.

While Funding Circle did not explicitly single out the U.S. market, data that the company disclosed in an unscheduled financial update showed that its U.S. loan volume fell by a substantially larger margin during the second quarter than in its other markets.

Funding Circle’s U.S. loan originations declined to $166 million between April and June, down 30% from the first quarter. A company spokesman said that the firm’s U.S. second-quarter loan volumes tend to be lower than first-quarter volumes due to seasonal factors.

In the U.K., which is Funding Circle’s biggest market, loan originations in the second quarter declined by 9.5%. They were flat in Germany and the Netherlands.

“The uncertain economic outlook has reduced demand from small businesses and led us to proactively tighten lending criteria,” Funding Circle CEO Samir Desai said in a written statement. “We recognize that this is a change from our previous guidance, but we are taking the prudent course of action for the long-term growth and development of our business.”

Funding Circle operates an online platform that links small-business borrowers with investors who fund the loans. Its customers tend to be more creditworthy than small-business owners who turn to many other online lenders.

The company said Tuesday that its current loan performance remains in line with previous projections.

Across all four countries where Funding Circle operates, the company reported revenue growth of approximately 30% in the first half of 2019 compared with the same period a year earlier. It had previously projected 40% revenue growth for all of 2019, but it reduced that estimate Tuesday to 20%.

Funding Circle, which is scheduled to report its second-quarter results on Aug. 8, also said Tuesday that it has paused the launch of operations in Canada in 2019 to focus on its existing markets.

Shares in the company, which is publicly listed in London, plunged by 29% on Tuesday.

In the consumer credit realm, U.S. lenders have been preparing for the next economic downturn for some time. For instance, credit card issuers, which are more exposed to recessions than many other lending businesses, have been reducing credit lines and terminating inactive accounts.

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