Funding Circle (LSE:FCH) has shifted from a growth-at-all-costs lending platform to a Business measured by profit. Its interim results for the six months to 30 June 2026, published on 8 September, showed profit before tax up fourfold to £24.1 million on Revenue up 50 per cent to £138.2 million. Management raised full-year guidance to more than £255 million of revenue and more than £40 million of pre-tax profit, and reaffirmed medium-term targets that put profit margins at the centre of the story.

The emphasis on profitable lending reflects how the model works. Funding Circle mostly earns fees for arranging, servicing and increasingly funding Credit for small and medium-sized enterprises (SMEs), so returns depend on disciplined pricing, controlled credit losses and a steady Supply of institutional capital. The company is also returning surplus cash through share buybacks, launching another £25 million programme on 21 September.

Not everything is settled. Chief Executive Lisa Jacobs will step down by September 2027, and the shares fell on results day despite the upgrade.

How the Platform Makes Money

Funding Circle operates two main business lines. Term loans provide SMEs with longer-dated finance for Investment and working capital, funded largely by third-party investors such as banks, asset managers and insurers through forward flow agreements. Funding Circle earns transaction fees when loans are originated and servicing fees over their life.

The second line is FlexiPay and the credit card, which the company funds more directly on its own Balance Sheet with a committed Facility from Citi. FlexiPay is a line of credit repaid over one to twelve months, while the Cashback card earns interchange income. These products produce interest income and give customers more reasons to stay with Funding Circle. The company also runs a marketplace that connects businesses with third-party finance providers.

In the first half of 2026, transaction fees reached £79.2 million, servicing fees £21.0 million and net interest income £31.2 million.

A Record First Half

Credit extended across the platform rose 52 per cent to £1,690 million in the first half. Term Loan originations increased 43 per cent to £1,050 million, and FlexiPay and card transactions climbed 71 per cent to £640 million. Assets under management reached £3,253 million.

The term loans business carried the profit. Its revenue rose 43 per cent to £108.2 million and pre-tax profit more than doubled to £28.6 million, lifting its Margin to 26.4 per cent from 16.7 per cent. FlexiPay and card revenue grew 83 per cent to £30.0 million, with the loss before tax narrowing to £4.5 million from £6.7 million. Active customers rose around 48 per cent to approximately 25,000.

At group level, the pre-tax margin was 17.4 per cent, compared with 6.5 per cent a year earlier. Operating expenses rose 27 per cent to £98.9 million, well below revenue growth, although Marketing spend increased 45 per cent to £39.9 million.

Why Profitability Now Leads the Strategy

Funding Circle's guidance now centres on margins. For 2029, it targets revenue of £300 million to £350 million and pre-tax margins in the low to mid-20s per cent. That means growth must be delivered without sacrificing returns.

Several factors support that aim. Operating Leverage is evident, with revenue growing faster than costs. The term loan business has moved to a platform model that includes shorter six-to-24-month loans. And product cross-selling is increasing: 31 per cent of customers now use more than one product, and more than half of credit card customers are new to Funding Circle.

Funding capacity is equally important. In June 2026 the company renewed a £200 million forward agreement, and on 11 August it announced a two-year, £500 million forward flow commitment from Castlelake, a new institutional investor. The half-year report said Funding Circle had £2.4 billion of committed future forward flows. The Citi facility for FlexiPay was extended in April 2026 with £320 million committed.

Cash Returns and the Balance Sheet

Funding Circle ended June with total cash of £187.7 million, of which £136.5 million was unrestricted. The company has bought back around £72 million of shares since March 2024, which it said equals roughly 18 per cent of issued share capital.

The third buyback, worth £25 million, completed on 18 September 2026 after acquiring 18,038,193 shares. A fourth programme of up to £25 million began on 21 September and is expected to finish no later than the second quarter of 2027. The board said it believed the share price materially undervalued the business.

Credit Quality, Leadership and Other Risks

Lending to small businesses is cyclical. The expected credit loss charge rose to £15.2 million from £8.4 million in the first half, reflecting the growth of the FlexiPay and card book. On the results call, management said credit quality was in line with expectations but acknowledged uncertainty ahead of the UK Budget.

Marketing is another pressure point: management said around 30 per cent of revenue goes on marketing. If customer Acquisition costs rise, margins could suffer. The model also relies on institutional investors continuing to fund loans; a pullback would reduce origination capacity.

Leadership change adds uncertainty. Ms Jacobs, who joined in 2012 and became chief executive in 2022, will remain in post while the board, led by chair Ken Stannard, searches for a successor. The shares fell around 8.7 per cent on 8 September, suggesting some good news may already have been priced in.

What Comes Next

The key near-term checks are the full-year results for 2026, when investors will see whether revenue exceeds £255 million and pre-tax profit tops £40 million. Management said the third quarter was tracking in line with expectations and that the fourth quarter should benefit from normal seasonal strength. Progress on the CEO search, the pace of the new buyback, credit losses and any effect of the Budget on SME Demand will also be watched.

Weighing It Up

Funding Circle's focus on profitable SME lending is showing up in its numbers: faster revenue growth than cost growth, higher margins in term loans, a narrowing FlexiPay loss and fresh institutional funding. Buybacks show the board's confidence in the cash position. Rising credit charges, heavy marketing spend, reliance on third-party funders and a pending CEO change mean the path to its 2029 targets still carries real risk.