The Government to announce plans to lend to small businesses through Funding Circle

Click the image to view the supporting infographic: The Rise of Peer-to-Peer Lending Infographic Rise of P2P lending

In this year’s Budget, the Chancellor announced that the Government was allocating £100 million for investment in ‘non-bank’ channels to help improve the flow of finance to growing businesses.

Today, the Government will announce their plans to join Funding Circle and lend £20 million to businesses directly through our marketplace. This is exciting news and represents the first time a UK Government has directly lent money to growing businesses in this way.

We understand this news represents a significant evolution for Funding Circle and we wanted to share with you how this will work, and the new lending opportunities we believe it will create for all investors.

Why is the Government doing this?

Despite many initiatives to stimulate bank lending over the last few years, net lending to businesses has continued to decline. Whilst bank lending to businesses has deteriorated, Funding Circle has rapidly grown. In two years since we launched, thousands of British people have helped to lend £65 million to more than 1,300 businesses. Last month investors lent £7m to British businesses.

The Government has now recognised the impact that non-bank channels, such as Funding Circle, can play to help ease the flow of finance to businesses.

How will it work?

The Government plans to lend £20 million to British businesses through Funding Circle over the next 12- 24 months. This is subject to parliamentary approval and agreement of legal terms and conditions. The current proposal is that:

  • The Government will lend on every loan that comes on to the marketplace and fund up to 20% of each loan at the average rate
  • We believe this is the clearest option and enables the Government to fulfil its wishes to participate in every loan whilst having no adverse effect on investors’ bidding experience
  • The remaining 80% of a loan will be funded by investors in the normal way, so your investment experience will remain exactly the same
  • Once the auction has closed and the average interest rate has been set for the remaining 80%, the Government will fund 20% at the same interest rate as the rest of the loan

How does it affect me?

We are committed to ensuring all investors continue to enjoy their investment experience and have more opportunities to lend. There is an estimated £7.3 billion worth of small business lending in the UK each month. With the Government’s investment, however, we believe we will be able to help more businesses obtain the finance they need to grow and create more investment opportunities for everyone at attractive rates.

When will the changes take place?

Subject to parliamentary approval and agreement of legal terms and conditions, the Government expects to start lending early in 2013 and we will notify everyone when this occurs. The marketplace will be clearly signposted so you are aware that 20% of every loan will be funded by the Government.

We think this is an exciting time for everyone involved with Funding Circle and represents an important milestone in the journey to redrawing the financial landscape for small business lending. We are looking forward to the beginning of 2013 and creating lots more opportunities for you to invest and support great British businesses.

Click here to read further information about how today’s announcement will work and join the discussion on our new forum. Our team will be on the forum all week and are happy to answer any questions you have.

The Funding Circle team

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