Frustrated by high street banks' unwillingness to lend to small and medium sized businesses, the UK government is handing over millions of pounds to peer-to-peer lenders to distribute.
Business Secretary Vince Cable has earmarked £55 million in taxpayer funds, which will be split between four P2P players; Funding Circle, Zopa, Boost and Credit Asset Management. The money will be matched by the private sector.
Explaining the thinking behind the scheme in May, Cable said: "As businesses are continuing to struggle to get credit from their banks, developing alternative lending channels is essential so firms are less reliant on banks. Our aim is to create a more diverse financial infrastructure which better serves the needs of our small and medium-sized companies."
Funding Circle, which has helped small businesses secure over £65 million in loans since launching, has been given £20 million to distribute.
Samir Desai CEO, Funding Circle, says: "Not only is this a huge vote of confidence for peer-to-peer lending, it's a defining moment for the future of small business finance."
Zopa, which has facilitated more than £250 million in loans (although mainly between people, rather than businesses), and has just secured investment from Jacob Rothschild, has been entrusted with another £10 million.
"We hope that the additional money being lent through Zopa will help thousands of sole traders to further their business and help build the economy," says Giles Andrews, co-founder, Zopa.