Peer-to-peer funding facilitator RateSetter will be lending British business bank cash alongside that of consumers using the website.

Set up in 2009, RateSetter provides a way for businesses to borrow money from consumers looking for a better return on savings.

Under the terms of the agreement, RateSetter will lend the first £4 million by allocating 40 per cent of each transaction, after which the remaining £6 million will be worth 20 per cent each time.

The British business bank, set up by business secretary Vince Cable and headed up by Keith Morgan, has also provided funds for fellow alternative lenders Funding Circle and Zopa.

Commenting on the new partnership, RateSetter CEO Rhydian Lewis says that discussions with the business bank have been ongoing for 18 months and involved ‘thorough’ due diligence.

‘I believe in the power of government to catalyse change. The government is not propping up peer-to-peer lending or underwriting loans; it is lending, on commercial terms, to stimulate lending to the real economy and to catalyse the emergence of peer-to-peer lending as a competitive force in finance,’ he adds.

More on the business bank:

• The government’s new business bank for SMEs
• New business bank will not aim to displace existing institutions
• Business bank could be eclipsed by pension funds for finance support

RateSetter says that it is the fastest growing of all UK peer-to-peer platforms, growing at a rate of 219 per cent in 2013 compared to the industry average of 107 per cent, as declared by innovation charity Nesta.

The alternative funding market in the UK received a boost recently when it was announced that, as part of the government’s Small Business Bill, a consultation would begin on whether high street banks would be required to refer failed loan applications to peer-to-peer platforms.

Marion Hamilton, owner of Solway Physiotherapy Clinic was advised by her bank manager to look at alternative finance in order to expand, and was grateful for his ‘honesty’.

Pizzarova founder Alex Corbett says, ‘Following a series of disappointing conversations with the banks, who would only offer loans on unfavourable terms, I turned to alternative finance.

‘I would advise any entrepreneurs and start-ups who are struggling with the banks to explore peer-to-peer lending as an alternative.’