The recent decision by the British Business Bank to lend £10 million to businesses through peer-to-peer funding platform RateSetter underlines the status of non-bank finance.

The move by the British Business Bank marks another important milestone for the non-bank finance industry as it establishes itself as a mainstream SME finance service. The Bank has already made £40 million in small business lending available through the Funding Circle, and Santander has recently signed a deal to offer peer-to-peer lending through the same non-bank finance lender.

The latest peer-to-peer lending deal demonstrates just how much the SME funding landscape has changed in recent years. With traditional lenders deciding to maintain a cautious approach to small business lending, non-bank finance services have stepped in to fill the gap in funding and have flourished.

Led by invoice finance, the non-bank finance industry has grown dramatically, with its flexibility, transparency and affordability becoming increasingly popular with SMEs in need of start-up funding or capital to maintain cashflow. Figures from the Asset Based Finance Association show that non-bank finance use by small businesses has reached record levels.

Indeed, all the evidence points toward the continued growth of the non-bank finance sector. Recent developments underline the commitment of both the government and the banking sector to services such as invoice finance and peer-to-peer lending. As seals of approval go, this seems like a pretty clear one.

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