The state-owned British Business Bank has announced a loan worth £40m for peer-to-peer lenders Funding Circle to support investment opportunities for small enterprise.
The loan has been provided by the bank’s commercial arm, British Business Bank Investments Ltd, and is set to be received by small businesses via Funding Circle’s peer-to-peer lending platform.
Funding Circle co-founder James Meekings welcomed the investment, and in a statement claimed that the platform had proven to be an “efficient way for small businesses to access the finance they need to grow and expand.”
The peer-to-peer model uses online platforms to give both lenders and investors better interest rates by bypassing traditional banks, and the British Business Bank loan will create further lending opportunities for entrepreneurs looking for investment.
The key difference between peer-to-peer and traditional lending is that peer-to-peer investments are not protected by the government’s Financial Services Compensation Scheme (FSCS), meaning there is no guarantee that investors will receive any repayments.
Commenting on the British Business Bank’s investment, Catherine Lewis La Torre, CEO of British Business Bank Investments Ltd, said that peer-to-peer lending had become “an increasingly important source of finance for smaller businesses”.
The British Business Bank committed an initial £60m to Funding Circle in 2013, and research by the Centre for Economics and Business Research (CEBR) in August 2016 found that Funding Circle had financed over 10,000 business ventures across Britain.
According to CEBR, lending via Funding Circle has generated £2.7bn to the UK economy since 2010.
To date, the British Business Bank has provided funding to two other peer-to-peer lending platforms outside of Funding Circle – RateSetter and MarketInvoice.
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