The European Investment Bank (EIB) is planning to lend £100m to UK small business through the popular online lender Funding Circle, suggesting the acceptance of peer-to-peer (P2P) and marketplace lending is gaining traction.
The not-for-profit bank borrows money on capital markets to invest in projects dealing with infrastructure and regional development. It is owned by member states of the EU, so there is a high chance this scheme will be deployed in other European countries.
“This is an interesting direct model for supporting small businesses, which has the potential to be quite efficient,” said the bank.
It went on to say how it is stepping up its support for small businesses across the EU and how it is making the UK part of that. In 2014, the Bank lent €77 billion.
The decision comes as a huge victory for Funding Circle, one of the strongest performing companies of 2015. So far this year the company has enabled £353m loans, according to the AltFi Liberum Returns Index.
EIB hopes to confirm the terms of a deal with Funding Circle this autumn after getting support from member states. It said it intends to disperse the funds all at once and is open to arranging a repeat of the deal.
In turn, Funding Circle revealed that it would be deploying a London-listed fund the company is planning to launch as the vehicle for the investment. The move would make Funding Circle the first marketplace lender to run its own fund. The SME Income Fund would hold a passive selection of Funding Circle’s loans.
EIB is also considering setting up a peer-to-peer lending scheme in the Netherlands with Geldvoorelkaar and Lendahand being viable marketplace options. The bank said there is “huge demand for initiatives to improve access to finance by small businesses across Europe”.
Funding for Lending Scheme
The bank did however note some limitations to its scheme, most notably the government’s Funding for Lending Scheme, which has been covering the same territory since 2012.
The state-owned British Business Bank has been working directly with Funding Circle and other peer-to-peer platforms for the past three years.