Santander is to become the first high-street bank to refer its customers to an online peer-to-peer lender, in a sign that alternative finance providers are achieving mainstream acceptance.
Its partnership with Funding Circle, a peer-to-peer lending website that specialises in corporate loans, follows months of negotiations, after the Spanish bank first expressed interest in a deal last year.
Santander's move comes just weeks after San Francisco-based Union Bank agreed to sell some of its personal loans through the online marketplace Lending Club. However, the Santander deal with Funding Circle is the first such arrangement for small business lending.
Funding Circle, which has helped more than 5,000 businesses borrow £290m since starting trading four years ago, will reciprocate Santander's endorsement of its lending platform by promoting the financial services group's current account and cash management services.
Ana Botin, Santander UK's chief executive, said: "Santander's partnership with Funding Circle is a good example of how traditional and alternative finance can work together to help the nation's SMEs prosper.
"Peer-to-peer financing is also a useful way to introduce people to the concept of investing in entrepreneurs; an important element in a healthy enterprise economy."
Peer-to-peer lending is part of the UK's fast-growing alternative finance market, which has expanded from almost nothing before the financial crisis to lend out close to £1bn.
Because peer-to-peer lenders operate online, linking individual lenders and borrowers directly, their margins are thinner than those of high street banks, which means rates for lenders can be more attractive.
Small business borrowers pay about the same rate for loans on Funding Circle as they do from traditional banks, but can get a decision on their application and their money more quickly by using the former.
Samir Desai, co-founder and chief executive of Funding Circle, said: "This partnership recognises our role as the only marketplace that caters for, and is dedicated to, small businesses.
"In Santander we have found a fellow challenger brand that shares our commitment to putting small business customers' needs first. They have created a blueprint for other banks to follow."
The partnership agreement the two organisations have struck is not exclusive, allowing Funding Circle to strike similar deals with other high street lenders.
Earlier this year, the coalition government announced plans to force UK banks to direct customers whose loan applications they reject to alternative finance providers. A consultation on how this could happen ended in April and the government is due to publish its proposals soon.
The coalition government has lent its support to alternative lending platforms by agreeing to use Funding Circle to lend £40m of the money earmarked for the new Business Bank.
Vince Cable, the business secretary, said of the partnership between Santander and Funding Circle: "I want to see others follow suit and make this standard practice for all large banks."
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