December 14, 2012 - Rachel Miller
More than £110 million of new funding is to be made available to small businesses over the coming years thanks to a new lending initiative announced by the business secretary, Vince Cable.
Cable has pledged £55 million of Government funding to peer-to-peer lenders and other finance suppliers through the Business Finance Partnership scheme. In addition, match-funding by the private sector is expected to add at least another £55 million.
£30 million has been pledged to two peer-to-peer lenders — Funding Circle will receive £20 million and Zopa will receive £10 million. New fund management company BOOST&Co will receive £20 million to provide loans to SMEs of £1 million to £8 million. And Credit Asset Management Limited will receive £5 million to provide asset finance and professions loans.
Vince Cable said: "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."
Paul Aitken, CEO of borro, described the initiative as "a great endorsement for the [peer-to-peer] sector… it acknowledges the role that alternative lending is playing and will continue to play in the wider economy. It's about time that alternative lending is recognised as providing a much-needed route for finance."
John Walker, national chairman of the Federation of Small Businesses (FSB), said: "This not only helps peer-to-peer lenders increase their scale and attract more investors, but also become known challengers to the banks. We now urge the Government to look at how the Business Bank and forthcoming regulations from the Financial Conduct Authority, when it replaces the FSA, can further imbed peer-to-peer lenders into the credit landscape."
Vince Cable added: "Today's 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."
The Business Finance Partnership is a £100 million fund. The Government will announce the allocation of the remaining £45 million in 2013 once due diligence is completed on the remaining bids.