The government has confirmed a further £40 million in funding to be provided via the peer-to-peer (P2P) lending platform Funding Circle.
Finance will begin to be offered from March 1st 2014, with the government providing a relatively small share of the full amount required on numerous different loans, and other Funding Circle lenders able to bid to provide the rest at their own preferred interest rate.
During previous rounds of funding, the government placed bids to provide as much as 20% of the full value of each loan on which it made an offer.
This time around, the government’s bids will be for no more than 10% of the full loan value, until £35 million has been allocated.
The remaining £5 million will be allocated on the basis of a 5% bid for each loan, until the last of the £40 million has been lent.
Under a previous £20 million provision of government funding via Funding Circle, nearly 2,000 P2P business loans were part-funded, contributing towards a total loan value of about £140 million once the other lenders’ contributions are taken into account.
In terms of the interest rate received by the government on its lending, the previous £20 million of investment was made at the average interest rate offered by the other bidders on each loan, which is arguably the fairest approach for both creditors and debtors alike.
Business secretary Vince Cable said: “The Business Bank is helping to support serious volumes of lending to small and medium-sized businesses through new finance providers.
“Too much business lending is concentrated in the big banks and, 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.”