Financial Times | Emma Dunkley | June 20, 2016

Move marks EU show of support for alternative finance in the UK

EU states are to support small British businesses through a UK peer-to-peer lender in the first deal of its kind, despite uncertainty surrounding the referendum this week.

The European Investment Bank, whose shareholders are members of the EU, is to lend £100m to smaller companies through Funding Circle in a show of support for alternative finance in the UK.

The deal comes days before the UK’s referendum on its membership of the EU, with the Remain and Leave sides now neck-and-neck according to the latest opinion polls.

Funding Circle has facilitated more than £1.25bn of loans to 16,000 businesses in the UK since its launch in 2010. Over the past couple of years the platform has worked to diversify its investor base to include institutions, national governments and international bodies as well as individuals.

A spokesperson for Funding Circle said a “Brexit” vote would affect its ability to strike similar funding agreements in the future. Funding Circle confirmed its support for the Remain campaign on Monday.

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Some European alternative finance providers are inserting clauses into their lending terms with UK companies in case of a Brexit, which could increase the cost of funding, according to one person working for a platform.

The new funding partnership is the first time the policy-driven European Investment Bank has lent through a peer-to-peer platform.

P2P or “marketplace” platforms operate online, connecting investors and borrowers.

Unlike banks, P2P sites do not take deposits and lend themselves, but act as an exchange, making money from fees and commissions. With nimble technology, P2P sites can facilitate loans more quickly and can serve customers who might not gain loans from the mainstream banks.

Samir Desai, chief executive of Funding Circle said: “Our partnership with the European Investment Bank is the first of its kind and represents another important step on our journey to creating a global marketplace where creditworthy businesses borrow from a diverse range of investors.”

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