High street lender Santander UK has become the first British bank to form a partnership with an alternative finance provider in a move that it said would open up access to finance for more small firms.
Companies that have been rejected for a loan will be referred by the Spanish-owned bank to Funding Circle, an online lender that matches borrowers with private investors. In return, Funding Circle will direct borrowers back to the group if they are looking for day-to-day banking services or other support.
Samir Desai, chief executive and co-founder of the online lender, said: “This partnership recognises our role as the only marketplace that caters for, and is dedicated to, small businesses.
“In Santander, we have found a fellow challenger brand that shares our commitment to putting small business customers’ needs first. They have created a blueprint for other banks to follow.”
Established lenders have been accused of failing to provide sufficient credit to small and medium-sized enterprises (SMEs) and the UK government is considering making it compulsory for them to direct failed loan applicants to alternative institutions, such as peer-to-peer lenders.
Recent Bank of England figures show net lending by banks in its Funding for Lending Scheme shrank by £2.7 billion during the first three months of the year, with taxpayer-backed Lloyds accounting for more than £2bn of the decline.
Santander UK said it would refer some of its SME customers to Funding Circle in cases where it believed the firm was “better placed to help”.
The bank’s chief executive, Ana Botin, said: “SMEs need access to multiple sources of finance, and Santander’s partnership with Funding Circle is a good example of how traditional and alternative finance can work together to help the nation’s SMEs prosper.
“Peer-to-peer financing is also a useful way to introduce people to the concept of investing in entrepreneurs – an important element in a healthy enterprise economy.”
Funding Circle, which is regulated by the Financial Conduct Authority, has helped more than 5,000 firms borrow more than £296 million since its launch in 2010.
Its investors include thousands of private individuals, the government-backed British Business Bank and local councils. It lends businesses between £5,000 and £1m and offers investors an average net return of 6.1 per cent.