RBS to refer rejected business loan applicants to peer-to-peer lending

Royal Bank of Scotland (RBS) has announced it will start to suggest peer-to-peer lending to rejected business loan applicants.

The bank, Britain’s biggest lender to small businesses, said on Thursday that from next week it expects to direct thousands of businesses towards Funding Circle, which began a similar scheme with Santander UK in 2014, and Assetz Capital.

The government is thought to be determined to make similar programmes compulsory for banks, after some of Britain’s biggest lenders came under scrutiny for failing to a sector Whitehall considers of paramount importance in boosting the UK’s economic recovery.

“A key part of our long-term economic plan is to ensure that British businesses are able to access the finance they need to grow and succeed,” said the Chancellor George Osborne.

Peer-to-peer market contributed to about 1% of total lending to small businesses in 2014, RBS said, adding that it was growing at a rate of 200% a year.

The market for peer-to-peer lending has thrived on the financial crisis of 2007 and 2009 as bank credit has remained difficult to obtain for smaller businesses. However, by turning to peer-to-peer services, individuals, medium-sized and small enterprises can borrow funds directly from investors.

RBS, which provides a third of all its lending to small and medium sized firms in the UK, said it intends to expand the scheme across the UK over the next three months, once the pilot phase in Scotland and south-west England is over.

On Thursday, RBS shares closed up 1.53% at 386.00p.