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Opinions Split Over British Business Bank

Opinions are split over the British Business Bank’s involvement in the UK peer-to-peer lending market.

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The British Business Bank has made a number of forays into the alternative finance space – having now put almost £200m to work via 7 different platforms. These include market leaders Funding Circle, Zopa, RateSetter and MarketInvoice. But according to an article in today’s FT, the government has rejected over 120 applications from smaller alternative funding providers. Daniel Rajkumar, Founder and CEO of one such provider – Rebuildingsociety, has serious qualms about the BBB’s actions:

“The government is creating a monopolistic situation. They are helping the largest businesses when they could be powering our growth rate.”

What Mr. Rajkumar has highlighted is that the superior liquidity of the Funding Circle platform – provided in part by the contributions of the BBB – means that Rebuildingsociety and other auction-based platforms cannot compete in terms of the cost of borrowing:

“The same business would get funded at a lower rate on Funding Circle than it would on Rebuildingsociety.”

Rebuildingsociety joins a rejection list that also features one of the market’s largest peer-to-business lenders: ThinCats. Are the British Business Bank’s investments stymying the growth of promising new alternative finance providers?

The British Business Bank has invested a grand total of £60m through the Funding Circle platform. Funding Circle has now passed the £400m mark in cumulative lending in the UK – over £300m more than its closest structurally comparable rival (ThinCats). There’s a clear logic in the government’s decision to focus its investments upon the largest platforms. Funding Circle,Zopa and the like are unique in terms of possessing a pipeline of borrowers large enough to swiftly put the BBB’s money to work.

It also makes sense for the British Business Bank – which is feeling its way gradually into this new and exciting market – to deal initially with the most established platforms. Perhaps there will be a series of smaller investments for a broader range of platforms in the future. This will likely rely on the industry maturing to the point that the government trusts even the more nascent providers.

Or perhaps it’s simply a case of waiting for more platforms to scale. Stuart Law, CEO of Assetz Capital, has not yet applied for BBB funding and yet heaped praise upon the organization – indicating that he remains hopeful for investment in the future:

“It’s very useful and practical what the government is doing to carve out an opening for new people in the banking sector.”

In the short term, we imagine that up-and-coming platforms are likely to instead go in search of local government support. Funding Circle has already established regional partnerships up and down the country – and it wouldn’t be a surprise to see other peer-to-business lenders following suit before long. 

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Stuart Law

CEO and co-founder

Assetz Capital

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