Funding Circle and Zopa revealed as peer-to-peer lenders receiving portion of Business Finance Partnership cash

Peer-to-peer lending platforms Zopa and Funding Circle are set to receive a share of government capital aimed at stimulating lending to small businesses.

Business secretary Vince Cable has unveiled £110 million of new funding to improve access to credit for small and medium-sized businesses (SMEs).

As part of the Business Finance Partnership package, Cable has pledged £55 million to peer-to-peer lenders and other finance suppliers.

The structure of the capital means that match funding from the private sector is expected to generate an extra £55 million, taking the total to £110 million over the coming years.

Online debt lending platform Funding Circle has been allocated £20 million of the £55 million pie. The crowdfunding business allows UK people to lend money directly to small companies in the UK.

Samir Desai, CEO and co-founder of Funding Circle, says, ‘Not only is this a huge vote of confidence for peer-to-peer lending, it’s a defining moment for the future of small business finance.

‘Thousands of people are already supporting British businesses in this way and are reaping the rewards. The government will now be able to boost its efforts on a substantial scale by injecting money directly into the bloodstream of Britain’s businesses and driving economic recovery.’

Also receiving capital is Zopa, a website which allows investors to lend directly to SMEs. It is set to net £10 million to allow businesses to access easier loans.

Cable comments, ‘Small and medium-sized businesses need access to a diverse of finance options, including non-bank lending.’

‘These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market.’

The news comes a week after the government announced that HM Treasury will be leading a consultation aimed at producing a regulatory framework for peer-to-peer lenders.

The Business Finance Partnership is a £100 million fund created by David Cameron’s coalition. The government expects to announce the allocation of the remaining £45 million in 2013 once due diligence is completed on the remaining bids still being considered.

Other alternative finance suppliers securing a portion of the £55 million are BOOST&CO, a new fund management company which will now use its £20 million share to set up a fund that will make loans between £1 million and £8 million to small businesses, and Credit Asset Management. As a subsidiary of City of London Group, Credit Asset Management has £5 million to play with to provide asset finance and professional loans.

Cable adds, ‘[This] funding announcement is just the type of help that the new Business Bank will offer. The bank, which will be operational by 2014, is being designed to tackle these long-standing, structural gaps in the supply of finance for SMEs.’

However, the decision to alocate the capital has divided some entrepreneurs and financiers, who don’t believe that the solution solves the bigger problem.

Nick Ogden, CEO of agency business bank CashFlows, says that the announcement is great for very small micro SMEs which are looking for Wonga-type funding as an alternative to using their own personal credit cards to finance business cashflow.

‘But the reality is that business builders which have been operating for about a year are frightened to seek funding from their clearing bank in case a “no” (which many expect anyway) impacts their business next time they approach their bank,’ he adds.

‘The whole supply of business finance services is in disarray. If this was resolved practically, I am sure that people would be further encouraged and incentivised to start their own companies.’

Neil Greenaway, managing director of Clifton Asset Management, comments, ‘While we welcome government funding support, by the business secretary’s own admission, it is “small in scale”.

‘Breedon [through the Breedon Non-Bank Lending Report on Alternative Sources of Finance] also highlighted the need for more collaboration between banks and other lenders, and with capital rules continuing to restrict the volume of bank loans, the government needs to encourage the banking sector to work with all alternative funding providers to increase the number of loans made to the SME sector.’

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Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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