Further proof that non-bank finance is establishing itself as a mainstream SME lending service: Santander has signed a deal to offer peer-to-peer lending through the Funding Circle.

While Santander is not the first high-street lender to move into the alternative finance arena, the agreement to refer customers to the online Funding Circle peer-to-peer lending service marks a significant merging of traditional and alternative SME finance. The deal recognises the key position that non-bank finance products such as peer-to-peer lending and invoice finance have in the new small business lending landscape.

The Funding Circle has lent businesses £290 million since its launch and passed a major milestone this year, lending SMEs over £50 million in the first quarter alone. In addition, the British Business Bank has made available SME lending worth £40 million through the Funding Circle.

New figures from the Asset Based Finance Association are the latest to highlight the rapid growth of the non-bank finance sector. According to the association, use of asset-based finance by the country’s largest businesses rose by 16% to £5.1 billion for the year to the end March 2014. The number of businesses with a turnover in excess of £100 million using asset-based finance was 315 for the period, up from 277 for the year to the end of March 2013 and from 81 over the same period in 2003-04.

Furthermore, the deal between Santander and the Funding Circle could jump- start a trend for collaboration between traditional and alternative lenders. With the former are still taking a cautious stance towards small business funding, this referral-type arrangement offers these banks a more comfortable means of increasing their SME lending activity.

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