This year has witnessed a seismic shift in small business finance: alternative SME lending has boomed in the wake of traditional bank caution. State endorsement of peer-to-peer lending only emphasises this sea change and the importance of services such as select invoice finance.

The government’s announcement that it will allocate over half of the £100 million funding designated for small businesses available under the Business Partnership Scheme to peer-to-peer lending is a ringing endorsement of alternative SME finance. It has already indicated that alternative finance will play a role in the British Business Bank, which, tellingly, will bypass traditional banks.

Vince Cable underlined the role of alternative finance when he commented that the funding will bring additional choice and greater competition to the market. The expansion of the alternative SME finance sector has been fuelled by prolonged caution over small business lending by banks and building societies. As a result, a host of innovative SME credit facilities have emerged and invoice discounting has proven the star performer.

The new small business funding pledge is a welcome move after the uncertainty of the Autumn Statement. The Chancellor’s failure to provide a date for the establishment of a British Business Bank has caused some unease in the SME sector. Indeed, the lack of clarity with regard to the SME bank underlines just how important small business credit services such as selective invoice finance are to British businesses.

Nevertheless, the allocation of funding to peer-to-peer lending is a clear sign that alternative SME finance is fast moving into the mainstream and that it will play an increasingly key role alongside and in tandem with traditional small business lending facilities.

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