RBS says it will send small firms to peer-to-peer lenders

Royal Bank of Scotland has teamed up with a pair of peer-to-peer lenders to offer alternative loans to small companies that are rejected by the bank, in the industry's latest attempt to improve access to corporate lending.

RBS, Britain’s biggest lender to small businesses, said it expects to refer thousands of firms to Funding Circle and Assetz Capital following a pilot that begins next week in Scotland and the south-west of England.

“In the past, it would have been unthinkable for an alternative lender, let alone a new peer-to-peer lender, to collaborate with a bank. However, it is clear that there’s a genuine desire emerging for banks to support SMEs more by introducing alternative lending industry options,” said Andrew Holgate, managing director of Assetz.

RBS follows in the footsteps of Santander, which announced a partnership with Funding Circle last summer.

Research by the Department for Business last year found that half of all small firms that apply for a loan are rejected. The Government is working on several measures to push mainstream banks to refer rejected firms to alternative lenders in the hope that lending to small businesses will improve.

The biggest banks lent £128m less to small businesses in the three months to the end of September through the Funding for Lending scheme, a Bank of England programme to provide cheap loans in the hope they would be offered to households and small firms more freely.

Peer-to-peer lending makes up just 1pc of all business loans, according to RBS, but the industry is growing quickly. Funding Circle has lent £494m since its inception four years ago, including £40m from the Government’s British Business Bank.