Small businesses seeking loans will soon be able to look online for secure and reliable investment following the first statement of support of alternative investment methods by a UK high street bank operator.
Santander has announced that it will begin referring customers to Funding Circle, a UK-based online peer-to-peer lending website which specialises in corporate loans.
The deal follows months of negotiations between the two businesses, and is a major milestone in the embracing of alternative finance providers by mainstream banking providers in the UK. The move comes just weeks after San Francisco-based Union Bank agreed to sell some of its personal loans through the online marketplace Lending Club.
The agreement is not exclusive, meaning Funding Circle could go on to strike similar deals with other banking organisations, although it has agreed to promote Santander's current account and cash management services.
"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," Ana Botín, Santander UK's chief executive, said of the deal.
"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."
Independent research by Nesta found that the peer-to-peer lending industry is set to triple in size over the next few years, and has the potential to become worth over £12bn per year within a decade. The leading three platforms alone have already completed almost £1bn of lending to date and will help lend another £1bn over the next 12 months.
Offering a "quick and convenient" method to seek investment, Funding Circle aims to connect its nearly 30,000 active registered investors directly to organisations via its online marketplace. The site says that its users can benefit from a 6.1% average return, with options to access their money early.
Funding Circle's investors recently exceeded £296m in total lending to over 5,000 businesses, with £130m lent in 2013 alone. Last year, it announced it would be providing £20m of small business loans to 2,000 companies as part of the government's as part of its Business Finance Partnership scheme to help boost the economy.
The company has also attracted interest from several of the world's biggest technology investors, with Union Square Ventures, which backed Twitter and the online games giant Zynga, backing a £10m fundraising last year alongside Index Ventures, the Swiss-British fund which has backed more than 100 internet start-ups including Skype and online retailer Asos.
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 deal gained the approval of business secretary Vince Cable, who said of the partnership, "I want to see others follow suit and make this standard practice for all large banks."