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Market newcomer Funding Circle see shares flop Shares flop in peer-to-peer lender Funding Circle
(about 1 hour later)
Shares in Funding Circle, the financial technology firm, have tumbled in the first day of full trading on the London Stock Exchange. Shares in Funding Circle, the peer-to-peer lender, have tumbled in the first day of full trading on the London Stock Exchange.
They fell as much as 24% from the float price of 440p before recovering slightly to trade at about 364p.They fell as much as 24% from the float price of 440p before recovering slightly to trade at about 364p.
Analysts say the flotation may have overpriced the firm.Analysts say the flotation may have overpriced the firm.
Funding Circle draws on a pool of funds collected from individuals and firms, which is then lent to small businesses vetted by the company.Funding Circle draws on a pool of funds collected from individuals and firms, which is then lent to small businesses vetted by the company.
Because it cuts out banks, Funding Circle was billed as a disruptive force in lending.Because it cuts out banks, Funding Circle was billed as a disruptive force in lending.
It offers loans to small businesses in the UK, the US, Germany and the Netherlands. It is the number one peer-to-peer lender to small businesses in the UK, the US, Germany and the Netherlands.
Since it was set up in August 2010, Funding Circle has lent more than £5bn to 50,000 small businesses from 80,000 investors - including some £1bn in the first half of this year.
High priceHigh price
Helal Miah, an investment research analyst at the Share Centre, said shares have fallen because the initial valuation of £1.5bn, was too high. Helal Miah, an investment research analyst at the Share Centre, said shares have fallen because the initial valuation of £1.5bn was too high.
He also pointed out that marketing spending is equal to 40% of revenues - a high ratio.He also pointed out that marketing spending is equal to 40% of revenues - a high ratio.
That, coupled with sparse financial data about the firm, would be likely to make investors wary, he added. That, coupled with sparse financial data about the firm, would be enough to make investors wary, Mr Miah added.
Funding Circle is the first such lender to float on the London stock market.Funding Circle is the first such lender to float on the London stock market.
It said the stock market listing would help "engender trust" with investors, borrowers and regulators.It said the stock market listing would help "engender trust" with investors, borrowers and regulators.
The venture, which was founded in London in August 2010, plans to use the money raised on the stock market to expand into new markets. The venture plans to use the money raised on the stock market to expand into new markets.
Financial crisis
Funding Circle was founded in the aftermath of the financial crisis, when trust in traditional banks was in the doldrums.
It enabled small and medium-sized companies to borrow from ordinary investors and other firms, rather than the traditional banks.
It has been billed as one of a new crop of financial technology companies, that might prove to be a real threat to the traditional banking industry.
Funding Circle chief executive Samir Desai has previously said his company might not have existed were it not for the crisis: "Before 2008, small businesses didn't necessarily like their bank but they trusted them. After the crisis even that wasn't true."