The British Business Bank is a new Government-owned financial institution set up with the goal of making financial markets work better for small businesses (www.british-business-bank.co.uk).
It will target its lending exclusively at RateSetter's business loans: individuals, sole traders or partnerships borrowing for business purposes. This has gradually and organically become a growing part of RateSetter's monthly loan demand.
We have been talking to the British Business Bank for over 18 months. The Bank does thorough due diligence before making any commitment and we, too, wanted to make sure we were ready - as a business and as a marketplace.
The Bank has committed to lend £10m through RateSetter. It will lend 40% of any qualifying loan until the first £4m has been lent after which this figure will move to 20% for the remaining £6m, thus facilitating £40m of lending.
We think £10m is a sensible figure: a fair match for the loan demand over the three year deployment period, without in any way swamping our market. The Bank will lend at the same rate as our existing 13,837 RateSetter lenders - this is important to us because we are proud of the way our marketplace sets rates, and important to the British Business Bank too as they want to lend on equal terms.
RateSetter is now a place for individuals to borrow for all sorts of reasons: to purchase a new car, to finance some home improvement, to spread the cost of a mobile phone or an annual commuting ticket or perhaps to pay down some more expensive credit card borrowings. Over the last year we have seen more and more sole traders and business owners come to RateSetter to borrow and this is the lending that the Bank wishes to support. We are getting to the parts of the economy that others aren't.
Talking openly, I am not always convinced of the merits of government involvement in finance. My personal view is that government is right to scale back its implicit back-stop of banks in order to eradicate the stifling effects of "too big to fail".
I do, however, believe in the power of government to catalyse change. The government is not propping up peer-to-peer lending or underwriting any loans; it is lending, on commercial terms, to stimulate lending to the real economy and to catalyse the emergence of peer-to-peer lending as a competitive force in finance. This is welcome - whilst other national governments have dragged their feet (or worse), the UK has recognised the innovation and potential of peer-to-peer lending. It is sending a message to borrowers that there are now alternatives.
We are proud that RateSetter is playing a part in the emergence of alternative finance and view the Bank's commitment as a very positive development for our marketplace, bringing further scale and liquidity for our borrowers and our lenders.
Rhydian Lewis, Founder and CEO, RateSetter