Business Secretary Vince Cable has announced £55m of new SME funding will be made available to four finance suppliers through the Business Finance Partnership (BFP).

Peer-to-peer lending platform Zopa confirmed it will use the £10m made available to it for arranging loans to thousands of sole traders, with Giles Andrews, cofounder and chief executive of the company, saying he was "delighted" the government "has recognised that there are alternatives to the traditional financial institutions".

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Zopa arranges lending through an online platform and recently announced it has cleared in excess of £250m in loans, 47% of which, year-to-date, have been for retail car purchases.

Funding Circle, Zopa’s fellow-founder of the Peer-to-Peer Finance Association, will receive a £20m tranche of funding; a move which chief executive Samir Desai called "a huge vote of confidence for peer-to-peer lending" and "a defining moment for the future of small business finance".

Small in scale

A further £20m was made available new fund management firm BOOST&Co, with lessor Credit Asset Management receiving the final £5m allocation.

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In his announcement, Cable said: "Small and medium sized businesses need access to a diverse range of finance options, including non-bank lending. These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market.

"Today’s funding announcement is just the type of help that the new Business Bank will offer"

The Bank will be open by 2014, with the recipients of the remaining £45m of BFP funding due to be announced in the New Year following due diligence. The government expects math-funding by the private sector to at least double the current funding, raising more than £110m in total.

Uncovered demand

At the Finance & Leasing Association (FLA) Motor Finance Convention in November Graham Wheeler, managing director of Volkswagen Financial Services, spoke of his hopes to see more liquidity made available by government and not restricted to banks alone, as under the National Loans Guarantee Scheme.

Stephen Sklaroff, director general of the FLA, added he had written to the Chancellor of the Exchequer on 21 November to ask why such schemes had been restricted in their coverage when such a demand for lending in the UK was still to be "captured". He also hoped the proposed Business Bank get lending to uncovered sectors.

Kirstin Green, deputy director, Consumer & Competition Policy, at the Department for Business, Innovation & Skills, replied to these points saying her Department colleagues would be interested in exploring such non-bank lending, as would the Treasury.