The UK government is to back P2P lenders with a multimillion investment, encouraging high-growth businesses to move away from bank lending.
The UK government is to award £100m to alternative lenders in a bid to boost funding to entrepreneurs. Up to £400m more will be invested by the Treasury through funds that lend directly to mid-sized businesses, a part of the Business Finance Partnership Scheme.
The entire programme is part of a £21bn credit easing programme to open up new channels of finance for SMEs. The government hopes to use the UK’s budget credibility to pass on the benefits of current low interest rates.
£100m invested by the Department for Business, Innovation and Skills will go to online peer-to-peer lending services who lend money directly to SMEs. Companies such as MarketInvoice and Funding Circle will submit proposals demonstrating how they would use some of the money to encourage lending to SMEs.
“It's an exciting and smart move by the government to open up to alternative lending to SMEs for the first time,” Anil Stocker, co-founder and director of MarketInvoice told Real Business. “Previously this has been mostly done through banks, like the Credit Easing Scheme.”
“The government is showing a lot of foresight in knowing that this is the only way we can wean ourselves from the five banks that control most of the market right now. It means that in five years time a business looking for funding will have a list of alternatives available.”
Market Invoice is ambitiously applying for £30m of funding.
With the programme, the government and the lenders hope to hit high-growth businesses who need funding the most. MarketInvoice is focusing on companies with a turnover of between £1m and £10m. “Those are the ones that are growing very quickly, and need the most support – it's critical to do the jump at this stage,” says Stocker.
It's a focus on those businesses that account for half of the country's GDP. “The government getting behind what we're doing means we are getting more attention, more coverage, more businesses will hear about us and on the long run that will be good for the UK economy.”
After the funding has been distributed, the government will come in on the same terms as private sector investors, and would get the same rate of return. Any government money has to be matched by an equal commitment of money from the online funders.
The tender process is due to be announced in early June. The government will announce the winners by September, when the spending will start.
Business Secretary Vince Cable commented on the launch: u2028“As businesses are continuing to struggle to get credit from their banks, developing alternative lending channels so firms are less reliant on banks is essential.”
“The Business Finance Partnership will help to develop these channels over the medium term so businesses seeking credit have more options available to them. Our aim is to create a more diverse financial infrastructure which better serves the needs of our small and medium-sized companies.”
We'll be able to ask Vince Cable more questions at the Entrepreneurs' Summit on June 13th. Join us there to connect or watch this space for updates on the scheme.
Picture by Liberal Democrats via flickr.com