Lancashire County Council has announced a new venture to assist SMEs by lending £100,000 through online lending marketplace the Funding Circle.
The Local Business Lending Partnership, the first of its kind, is a new scheme designed to stimulate local economic growth and employment through improved access to business finance.
The partnership, which was arranged by the county council and its economic development department, will see the council fund 20% of a loan to a local business, with the rest being made up through members of the public investing through the peer-to-peer lending platform.
James Meekings, co-founder of Funding Circle, said Lancashire County Council was leading the way for other local authorities to follow, "injecting finance right into the heart of the local business community".
Lancashire’s 52,000 small businesses are responsible for more than 50% of local private sector employment. A recent study by Funding Circle found 42% of small businesses in the North West said they would increase staff numbers if they could obtain finance. But loan facilities in the region fell by 30% between Q1 and Q2 of this year, according to figures from the British Bankers' Association.
Meekings continued: “In today’s economy, businesses want to access finance quickly with minimal disruption. This new partnership will free local businesses from the shackles of the high street banks so that they can continue to grow and fulfil their potential.”
Lancashire CC also has its own investment scheme called Rosebud, which has been providing business finance for the last 26 years. The council currently spends £1.9 million a year on investing in local businesses.
County councillor Michael Green, said in a statement: “There is great potential to grow the Lancashire economy in the future. Working with Funding Circle, our aim is to unlock more of this potential. Lancashire County Council is determined to show that the county is open for business."
Funding Circle told Huff Post UK there were other council schemes in the pipeline, which are due to be announced in 2013.
The news was warmly welcomed by John Walker, national chairman of the Federation of Small Businesses. He said the FSB had long championed the place of alternative sources of finance, particularly at a time when one in four small firms applying for bank loans were being refused.
He said: “The government needs to come forward with clearer proposals on how the money it has ringfenced in the Business Finance Partnership will be spent to benefit peer-to-peer lenders. The proposed small business bank should think more creatively than just using the high street banks to distribute the funds when providing guarantees and lending to small firms, and utilising peer-to-peer lenders will be one way of doing this.”
Launched in August 2010, Funding Circle enables businesses to access finance outside of the traditional route of high street banks.
Funding Circle works by enabling established and creditworthy businesses to borrow money from groups of people. Once businesses pass the credit assessments by Funding Circle’s team of underwriters, their loan is posted on the marketplace.
Investors then choose which type of businesses to lend to, and bid the amount of money they wish to lend, and the interest rate they want to earn. Investors can bid small amounts, from as little as £20.
To date more than more than £55m loans have been lent to small businesses across the UK, including £5m in the north-west.