Joanna Holloway, who was previously a manager of the RBS invoice finance unit, joined UC Finance this month as managing director after the business had approached her team to raise its own funding.
UC Finance is backed by a £5 million loan from RBS, along with £1m from its founder and chairman, former oil and gas executive Alf Gordon, and a £250,000 regional selective assistance (RSA) grant from the Scottish Government.
The firm, which employs six people, expects to hire ten more staff in its first year of operation.
UC Finance bases its lending on a novel “timesheet finance” model. Similar to invoice finance, which allows borrowers to raise cash by selling its bills to the bank, UC will lend up to 80 per cent of the value of time worked at a flat charge based on 2 to 3 per cent of the loan.
The company has set up as an alternative to overdrafts and expensive pay-day lenders and as a result of the “catastrophic” squeeze on lending for small businesses, Holloway said.
She added: “The banks aren’t lending, that is a fact. They are not lending particularly to the people we have spotted and we want to plug that gap in the market. We are going to be ethical and transparent, and costs will be low compared to other sources of short-term lending.
“This is business finance, we are treating contractors as the businesses they are.”
The firm “conservatively” expects it will have 1,000 clients out of an estimated 1.6 million self-employed people in the UK.
The number of businesses in Scotland grew by 3 per cent in the year to 31 March, 2011 due to higher numbers of sole traders.