Government invests £40m in Funding Circle to provide loans to small business

Move represents recognition of peer-to-peer lending as viable alternative to bank loans

Leading peer-to-peer loans site Funding Circle today announced it has received £40m of investment from the British government’s Business Bank, in order to provide loans to small and medium-sized businesses across the country.

The move follows a previous round last March, in which the government poured £55m of investment into alternative finance providers Funding Circle, Zopa, Boost and Credit Asset Management in an effort to provide small businesses with much-needed funding in light of high-street banks’ unwillingless to lend.

The £40m boost represents a further endorsement of the alternative finance sector as a viable alternative to bank loans, and recognises the impact of firms such as Funding Circle in helping small businesses obtain much-needed finance.

It follows last month’s news that the alternative finance sector – which includes peer-to-peer (P2P) lending, crowdfunding and invoice lending platforms – had broken the £1bn barrier at the end of 2013, demonstrating a sector in increasingly rude health.

The government’s £40m investment comes after Funding Circle said it had completed distributing its £20m share of the previous government cash injection, making loans to more than 2000 businesses and creating 6500 jobs.

Under the terms of the deal, Funding Circle will decide which business to provide loans to, with the taxpayer money funding 10% of each borrower request and the remainder coming from private investors using the Funding Circle platform.

It is another boost for alternative finance as a whole, which is expected to gain greater legitimacy in the eyes of investors when it comes under the ambit of City watchdog the Financial Conduct Authority later this year.

Startups 100-listed Funding Circle was founded in 2010 and allows companies to pitch for business loans on its platform, raising the money from private individuals on the site.

In a statement, business secretary Vince Cable said: “Too much business lending is concentrated in the big banks.

“If we’re to have a properly functioning business lending market, they need to be challenged by new banks, peer-to-peer lenders and other alternative providers.”

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