Sole traders in line for savers' funds

Pound notes
Image caption Peer-to-peer lenders do not guarantee to savers that their money will be returned

Thousands of sole traders could benefit from a new scheme allowing savers to offer them loans directly via an internet website.

Business Secretary Vince Cable has announced that the government plans to invest £10m in the online firm,

This will help it launch a service for builders and other small businesses that are not limited companies.

Another £20m of taxpayers' money is to go to Funding Circle.

This peer-to-peer lender specialises in limited companies.

A provider called Boost will receive £20m to set up a fund that will make loans between £1m and £8m, and Credit Asset Management will receive £5m.

In May this year, Mr Cable asked for bids from innovative lenders for a £100m pot of public money, made available to help unblock the flow of finance to small businesses.

Other providers of alternative finance will benefit as well.

No guarantee

Zopa's business enables people with spare cash to offer their money directly to borrowers over the internet.

They earn more than they would expect to get from a bank or building society savings account, although without the absolute guarantee that their money will be returned.

The firm has concentrated on consumer borrowers so far, but will launch the sole trader service early in 2013.

"There are three million sole traders and they find it really difficult to borrow money," said Giles Andrews, one of Zopa's founders. "No-one specialises in them."

Traders will be able to raise thousands of pounds to pay for vehicles and equipment, at a time when bank funding is hard to come by.


Mr Andrews expects to offer loans of between £1,000 and £15,000, at slightly higher rates than his best borrowers enjoy, because of the higher level of risk.

He will match the government money pound for pound with cash from savers. All the state funding will be paid back after two years.

Peer-to-peer lending has grown significantly. Zopa is on course to lend £90m this year and hopes to get close to £200m of loans in 2013.

On the face of it, the model is risky for savers, but their money is spread between hundreds of borrowers to reduce the chance of making significant losses.

Jacob Rothschild, from the high-profile banking dynasty, revealed in the last few days that he had bought a stake in Zopa, saying "alternative forms of credit will be developed on a significant scale".

Lord Rothschild would not reveal the size of the investment.

Samir Desai, chief executive and co-founder of Funding Circle, said: "Not only is this [investment from the government] a huge vote of confidence for peer-to-peer lending, it is a defining moment for the future of small business finance.

"For too long, British firms have been held back by a banking monopoly, with businesses across the UK struggling to get the finance they need."

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