July 25, 2025

Finance

Funding Circle vs Iwoca: Which Fintech Lender is Best for Your UK SME in 2025?

Compare Funding Circle vs Iwoca for UK small business loans in 2025. Discover which fintech lender offers better terms, rates, and overall experience for your SME.

James Laden

Co-founder and CEO

Traditional banks are increasingly pulling back from SME lending, with their share of new SME lending falling to just 41% in 2023¹. This significant shift has paved the way for fintech lenders to become a crucial source of finance for UK small businesses seeking faster and easier funding. Among the most prominent players in this evolving landscape are Funding Circle and Iwoca. But with both offering compelling solutions, how do you decide which lender is the right fit for your business in 2025?

This comprehensive guide, backed by the latest data and real customer experiences, will help founders and finance leads make an informed decision between Funding Circle and Iwoca. We will meticulously examine each company's performance in 2024-25, their loan products (amounts, APRs, terms), eligibility criteria, speed, user experience, and provide clear pricing examples. By the end, you'll have a clear understanding of the pros and cons of both lenders, enabling you to choose the best option for your UK SME.

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The Evolving Landscape of UK SME Finance

The alternative finance sector is experiencing a significant boom in the UK, largely due to the retraction of traditional high street banks from SME lending. This shift has created a fertile ground for fintech lenders to step in and fill the funding gap. In fact, non-bank and fintech lenders have "greatly increased their share of SME finance" by serving businesses that traditional banks often overlook. These alternative providers are not just attracting businesses away from banks, but are also enabling viable SMEs to access funding for the first time, thereby plugging a vital funding gap in the economy.

The years 2024 and 2025 mark a turning point, with many major fintech lenders demonstrating their sustainability. Both Funding Circle and Iwoca have reported healthy lending growth and achieved profitability, even amidst economic challenges. This indicates a maturing sector, with fintech lenders now becoming a mainstream option for SMEs, rather than a last resort. The convenience of online applications, rapid credit decisions, and tailored products are increasingly becoming the standard for modern business owners. This trend is clearly visible in loan volumes: Funding Circle's term loan originations surged by 47% year-on-year in the first half of 2024, while Iwoca's loan numbers increased by 82% in the same period. Experts anticipate that fintech lenders will expand their role in 2025, offering not only loans but a broader suite of financial tools, including cash flow management, cards, and embedded finance. This increased choice and competition in the market is good news for small businesses.

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Total Lending Volumes (2023 vs. 2024)

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Product Line-up and Loan Terms: Funding Circle vs Iwoca

Both Funding Circle and Iwoca provide unsecured business loans, which means no specific asset collateral is required. However, it's important to note that a personal guarantee is typically needed for limited companies. Their respective loan products and terms, however, present distinct differences.

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Funding Circle Business Loans

Founded in 2010, Funding Circle is a major player in the UK's online small business lending market, having lent over £14.6 billion to more than 110,000 UK businesses since its inception. While it began as a peer-to-peer marketplace, it now primarily funds loans through institutional capital. In 2024, Funding Circle experienced a significant transformation, launching new products and achieving full-year profitability after selling its US arm. Its lending volume surged to £1.9 billion in 2024, a 47% increase from £1.3 billion in 2023, reflecting a post-pandemic rebound in demand. By 2025, Funding Circle stands as the UK market leader in online SME loans and is fully FCA-authorised and regulated. It has evolved into a multi-product platform, offering business loans, a credit line (FlexiPay), and a business credit card.

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Funding Circle Business Loan Details:

Loan Amounts: You can borrow from £10,000 up to £750,000.
Loan Terms: Repayment terms range from 6 months to 6 years.
Interest Rates: Interest rates for the most creditworthy borrowers start around 6.9% per year.
Fees: A one-time completion fee, typically a few percent of the loan amount, is charged upon disbursal.
Repayments: All loans feature fixed monthly repayments of principal plus interest.
Early Repayment: There are no early repayment penalties, allowing you to settle early and save on remaining interest.
Short-Term Loans: Funding Circle has introduced short-term loans (£10,000-£50,000 over 1-2 years) to cater to younger businesses.
FlexiPay (Revolving Credit Line): This product offers a revolving credit line with limits from £1,000 to £250,000. It boasts 0% interest but includes a flat fee (around 1.9% for 1 month), effectively acting as a "buy now, pay later" solution for business purchases, repayable in up to 12 months.
Business Credit Card: Funding Circle also launched a business credit card with limits up to £250,000, offering cashback rewards.

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Pros of Funding Circle:

Larger Loans and Longer Terms: Offers loans up to £750,000 over 6 years, which is beneficial for significant investments and larger projects.
Lower Interest for Top Borrowers: Rates start from approximately 6.9%-10% APR for strong applicants, often more competitive than short-term lender rates.
Accepts More Business Types: Available to sole traders, partnerships, and limited companies, offering wider eligibility compared to Iwoca.
Quick Decisions and Funding: Provides instant decisions for most applicants, with funding often available within 24-48 hours, supported by a smooth online process.
No Early Repayment Penalties: Allows businesses to save on interest by repaying loans ahead of schedule.

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Cons of Funding Circle:

Requires 1+ Year Trading: Startups trading for less than 12 months are not eligible for standard loans.
One-off Completion Fee: Charges a completion fee (which can range from 3-6% of the loan amount), adding to the overall cost.
Less Useful for Very Short Term Needs: With a minimum term of 6 months, it's not as tailored for quick cash-flow gaps lasting only a few weeks (though FlexiPay addresses this separately).
Stricter Criteria: Expects a strong credit history; some applicants may be declined or offered lower amounts than requested.

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Iwoca Flexi-Loan and Long-Term Loan

Launched in 2012, Iwoca (short for "instant working capital") is a fintech direct lender specifically focused on small businesses. It is fully authorised by the FCA and has grown into one of Europe's largest SME lenders. Iwoca initially gained recognition for offering flexible, short-term loans to micro-businesses that faced challenges securing finance from traditional banks. The company achieved profitability in late 2022 and has remained profitable since. In 2024, Iwoca lent £730 million across 35,000 loans by October, marking a 76% year-on-year increase and a record high. To meet demand, Iwoca secured substantial funding lines, including £200 million from Citi, and doubled its maximum loan size to £1 million in 2024. Iwoca now serves over 100,000 businesses and is renowned for its innovative credit technology, integrating with platforms like Xero and Tide to reach SMEs.

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Iwoca Flexi-Loan and Long-Term Loan Details:

Flexi-Loan Amounts: You can borrow from £1,000 up to £1,000,000.
Flexi-Loan Terms: Choose any term from as short as 1 day up to 24 months.
Flexi-Loan Structure: This operates like a line of credit; you draw down funds as needed (up to an approved limit) and repay on a schedule or earlier.
No Early Repayment Fees (Flexi-Loan): You only pay interest for the days you have the funds.
Flexi-Loan Interest Rates: Interest is charged monthly, with rates starting around 1.5% per month for the lowest-risk businesses.
Arrangement Fee (Flexi-Loan): For loans over 12 months, a one-off arrangement fee (a small percentage) is applied; shorter loans have no setup fee.
Long-Term Loan: Introduced in 2025 to compete with larger loans, this product offers up to £350,000 over 3-5 years, with interest rates starting from 4.5% per annum for strong applicants.
Other Services: Iwoca offers invoice payment solutions (iwocaPay) and integration with e-commerce platforms, though these are distinct from standard loans.

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Pros of Iwoca:

Ultra-Flexible Credit: Offers unmatched flexibility with its Flexi-Loan, allowing borrowing from £1,000 to £1 million, repayable over 1 day up to 24 months, with the ability to top up as needed.
Accessible to Newer SMEs: Will consider startups and smaller businesses, with some cases requiring only 1+ days of trading.
No Early Repayment Fees (Flexi-Loan): Borrowers only pay interest for the exact days they have the funds outstanding.
Stellar Customer Service: Holds an impressive 4.8 Trustpilot rating, with customers praising personal account managers and high satisfaction levels.
Fast Funding: Known for its quick, automated process, with many borrowers approved within hours and funded the next day.

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Cons of Iwoca:

Not for Sole Traders: Only lends to UK-registered limited companies or partnerships, excluding some self-employed businesses.
Higher Interest Costs (Flexi-Loan): The effective APR can be high (often 20-50%+) if the Flexi-Loan is kept for an extended period.
Loan Term Capped for Large Loans: The long-term loan maxes out at 5 years and £350,000; larger, longer projects might not fit, whereas Funding Circle can offer 6-7 year terms.
No Dedicated Mobile App: While the website is mobile-optimized, it lacks a specific mobile app for on-the-go account management.

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Cost Comparison: What Will Your Loan Really Cost?

To illustrate the potential cost differences between Funding Circle and Iwoca, let's consider a hypothetical scenario: a business needs a £200,000 loan, to be repaid over 24 months (2 years).

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Assumptions for a Reasonably Qualified Borrower:

Funding Circle: Approximately 8% annual interest with a 3% completion fee.
Iwoca: Approximately 1.5% monthly interest (which is about 18% APR) and a 3% arrangement fee (since the loan term is greater than 12 months).

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Note: These rates are illustrative; actual quotes will vary based on your business's risk profile.

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Lender	Approx. Interest Rate	Upfront Fee	Monthly Repayment	Total Cost (Interest+Fees)
Funding Circle	~8% per year (fixed) 59	~3% (£6k) one-time 60	~£9,050 61	~£23k over 2 years 62
Iwoca	~18% per year (1.5%/mo) 63	~3% (£6k) one-time 64	~£10,000 65	~£45k over 2 years 66

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As demonstrated in this example, a £200,000 loan over two years would cost roughly £23,000 in interest and fees with Funding Circle, compared to approximately £45,000 with Iwoca. The significant difference is primarily due to Iwoca's higher interest rates for its short-term credit products. Funding Circle's lower APR and longer term generally result in lower monthly payments and less overall interest.

However, context is critical. Iwoca's Flexi-Loan product is designed for unparalleled flexibility. If you only needed the £200,000 for a few months and repaid it early, your total cost with Iwoca would drastically decrease, as interest is only charged for the days the funds are outstanding⁷¹. Funding Circle, conversely, is best suited if you intend to borrow a lump sum and repay it consistently over the entire term.

Both lenders typically charge an upfront fee, generally in the range of 3-6%. Always review the Annual Percentage Rate (APR) on any offer, as it combines interest and fees to provide the true yearly cost. For instance, Iwoca's representative APR can be around 49% on a £10,000, 12-month loan, while Funding Circle often advertises representative APRs in the teens. It's worth noting that the pricing gap tends to narrow for larger, longer loans, especially with Iwoca's new 5-year product offering rates from 4.5% for top-tier customers. As a general rule, Funding Circle is usually more cost-effective for standard loans, while Iwoca charges more for its flexibility and in cases involving higher risk. Importantly, neither lender charges hidden monthly fees; all costs are transparent (interest plus a potential upfront fee). Both also permit penalty-free early repayment, enabling you to save money if you clear the debt sooner.

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Real-World Use Cases: Which Lender for Your Scenario?

To further illustrate which lender might be a better fit, let's explore two common SME scenarios:

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Scenario 1: New E-commerce Startup (Cash Flow Boost)

Imagine a six-month-old online retail startup needing £15,000 to purchase inventory for an upcoming seasonal sales surge. The business has limited trading history and requires the funds quickly.

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Why Iwoca is the better fit here:

Trading History: The business is less than a year old, which means Funding Circle would likely decline the application due to its minimum 12-month trading requirement.
Flexibility and Speed: Iwoca could offer a £10,000-£15,000 credit line based on initial growth, allowing the startup to draw funds for stock and repay over a few months. The application could be submitted on Monday, with funds potentially available by Tuesday, leveraging Iwoca's Flexi-Loan. The startup could then repay early without penalty, reducing the overall interest cost.
Bridging the Gap: While the APR might be higher for a short-term necessity, the speed and accessibility of funds are crucial for this early-stage business. Iwoca effectively serves a viable SME that previously would have struggled to access any funding at all.

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Scenario 2: Established Manufacturer (Expansion Capital)

Consider a manufacturing company that has been trading for over five years. They are looking to secure £250,000 to invest in new machinery and expand production capacity. Their priority is a reasonable interest rate and a 5-year repayment term to ensure affordable monthly payments.

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Why Funding Circle is the strong choice here:

Eligibility and Terms: The company easily meets Funding Circle's criteria as a UK limited company with multi-year trading history and decent revenues⁸⁶. Funding Circle can offer a £250,000 loan over 5 years at an attractive rate (e.g., 8-10% APR), given the firm's stable profile.
Predictable Repayments: The monthly payments would be fixed and predictable, allowing the manufacturer to budget accurately.
Loan Size and Duration: While Iwoca can also fund £250,000, its standard Flexi-Loan is typically capped at 2 years, which is too short for this need. Even Iwoca's 5-year product is capped at £350,000 and may still carry higher rates for most borrowers compared to Funding Circle for this loan size and term.
Faster than Traditional Banks: Funding Circle offers a larger, installment-style loan much like a bank, but with significantly faster processing times. The manufacturer could have the funds within days, purchase the equipment, and know their exact repayment schedule.

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How to Qualify & Apply: Your Step-by-Step Guide

Both Funding Circle and Iwoca have streamlined online application processes designed for speed and user-friendliness.

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Funding Circle Application Process:

Check Eligibility: Start by using their 30-second initial eligibility checker. This performs a soft credit search, so it won't impact your credit score.
Online Application: Complete the 100% online application, which takes approximately 7 minutes. You'll provide company details, loan purpose, and connect your business bank account or upload recent statements.
Decision: For loans up to £250,000, decisions can come back in as little as 1 hour, with 77% of applicants receiving an instant decision. Larger requests or borderline cases may take longer for review.
Accept Offer: If approved, you'll receive a quote detailing interest rates and terms, which you can accept electronically.
Funding: Funds are typically disbursed within 24-48 hours after you sign the loan agreement.
Support: A UK-based support team is available via phone or email for any questions.

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Funding Circle Eligibility Criteria:

Trading History: Your business must have been trading for at least 1 year.
Location: Must be a UK-based business.
Business Structure: Accepts applications from limited companies, LLPs, and sole traders/partnerships (sole proprietors need 1+ year of accounts).
Credit History: A decent personal and business credit history is expected. While no specific credit score is published, fair-to-good credit with no recent bankruptcies is generally required.
Annual Turnover: Typically requires minimum annual turnover around £50,000-£100,000, especially for larger loans, as loan amounts are often capped as a percentage of revenue (historically 40-60% of turnover).
Personal Guarantee: Directors of a limited company must sign a personal guarantee for unsecured loans.

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Iwoca Application Process:

Online Application: The online application can be completed in 5 minutes or less. You'll provide basic business information and connect your bank accounts or upload financial data.
Decision: Decisions are usually delivered within 24 hours, often on the same day. Iwoca's system allows for dynamic "top-ups" and can increase your credit limit and lower your rate over time based on reliable repayment.
Draw Funds: Once approved, you can transfer funds immediately, and they often arrive in your bank within hours on the same day. The system allows for flexibility in drawing funds, so you don't have to take the full approved amount.
Account Management: While there's no dedicated mobile app, the mobile-optimized website dashboard allows you to manage your loan, request top-ups, or make early repayments easily.
Dedicated Account Manager: Iwoca assigns every customer a dedicated account manager for direct support.

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Iwoca Eligibility Criteria:

Trading History: No strict minimum trading time; even startups can apply, though initial limits may be around £10,000 for businesses trading under 1 year.
Business Structure: You must be a UK-registered limited company or partnership; Iwoca does not lend to sole traders.
Personal Guarantee: A personal guarantee from a director is required for limited companies.
Financial Data: Applications typically require recent bank statements or a connection via Open Banking for cash flow analysis. VAT returns or filed accounts may be reviewed for larger loans.
Credit Checks: Initial credit checks are soft and do not impact your credit score. Iwoca's risk engine focuses heavily on real-time cash flow and trading performance.
Revenue: No minimum revenue is published; funding is possible for relatively small businesses with healthy cash flow.

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To make an informed decision, Funding Agent provides valuable tools to assist you:

Unsecured Loan Eligibility Checker: Check your business's eligibility in minutes without affecting your credit score. This tool can show you potential offers from lenders like Funding Circle, Iwoca, and others.
Check your eligibility now!
Business Loan Calculator: Estimate your loan costs by adjusting the amount and term to see monthly payments and total costs, helping you plan with confidence.
Estimate your loan costs! (Note: While this is an invoice finance calculator as requested, a general business loan calculator would be more suitable here. Please adjust the link if a different calculator is intended for general business loans.)

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Frequently Asked Questions (FAQs)

Is Funding Circle or Iwoca better for a brand new startup?

Iwoca is generally more accessible for newer businesses, as it has no strict minimum trading time and may consider startups with even just a few days of trading activity. Funding Circle typically requires a business to have been trading for at least 1 year.

Do I need a personal guarantee for loans from Funding Circle or Iwoca?

Yes, for limited companies, both Funding Circle and Iwoca typically require a personal guarantee from a director for unsecured loans.

Are the interest rates from these fintech lenders higher than traditional banks?

Generally, the interest rates from fintech lenders like Funding Circle and Iwoca can be higher than those from traditional banks, particularly for short-term or higher-risk loans. However, their advantages lie in speed, flexibility, and accessibility, especially for businesses overlooked by banks. Iwoca's new long-term loan, for example, offers rates from 4.5% p.a. for strong applicants, which can be competitive.

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Conclusion & Recommendation

The choice between Funding Circle and Iwoca ultimately hinges on your business's specific profile and financing needs. Both are established, reputable fintech champions that have helped tens of thousands of UK SMEs thrive and grow.

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Choose Funding Circle if:

You need a larger loan or longer-term financing. For amounts in the high tens or hundreds of thousands and repayment over 3-6 years, Funding Circle will likely offer lower rates and suitable terms.
Your business is established with solid financials. More mature businesses with strong credit profiles often secure better deals.
You are a sole trader or non-limited business. Funding Circle accepts these business structures, whereas Iwoca does not lend to sole traders.
You prefer a straightforward loan with fixed installments. It offers a process similar to a traditional bank loan, but with enhanced speed and user experience.

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Choose Iwoca if:

You value flexibility or operate a newer/smaller enterprise. Iwoca is ideal for short-term working capital, seasonal inventory purchases, or bridging cash flow gaps, especially when you're unsure how long you'll need the funds.
You need quick, adaptive access to funds. Its Flexi-Loan allows you to draw money, repay early, and top up as needed, offering significant agility.
Your business is relatively young or requires a modest amount. Iwoca is more likely to approve newer businesses quickly.
You seek an ongoing line of credit. Many growing SMEs use Iwoca as a continuous facility to seize opportunities or manage emergencies. The slightly higher cost is often the trade-off for this agility, and customers highly value their exceptional service.

In some cases, it might even be beneficial to utilise both lenders at different stages. For instance, an SME might begin with Iwoca for immediate, short-term cash flow boosts, and later apply for a larger Funding Circle loan for a significant expansion project. Since neither lender penalises you for checking eligibility, it's advisable to obtain quotes from both to compare the specific offers tailored to your business.

Ultimately, for most working capital, growth, or cash flow needs faced by SMEs, Funding Circle and Iwoca represent two of the most convenient and highly-regarded options in the UK market. The question for SME owners is no longer "Bank or alternative?" but rather "Which alternative lender is best for my needs?" – as these alternatives often surpass traditional banks in speed and simplicity. Both Funding Circle and Iwoca are at the forefront of this fintech revolution in business lending.

Here's to securing the funding that backs your growth in 2025!

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