Funding Circle and Santander deal hailed as new era for funding

A partnership between Funding Circle and Santander Bank UK is being hailed as a new collaborative way of working.

The referral arrangement will see Santander proactively refer small business customers looking for a loan to Funding Circle, the online marketplace for business loans. Where Funding Circle is better placed to help, referrals will take place on Santander’s website and in letters to customers.

To date Funding Circle has helped more than 5,000 businesses borrow £290m through its marketplace. It said its rigorous and proven credit assessment process has seen investors earn an average of 6.1 per cent after fees and losses.

As part of the relationship, Funding Circle will signpost its customers to Santander where they require day-to-day relationship banking support or other services that the bank can offer such as international banking expertise, cash management and support for growth.

But Iain Clacher, an associate professor at Leeds University takes a different view. He believes the banks should be doing what banks do best - lending money to business customers.

“It’s an interesting approach by Santander UK not to lend to small businesses in the same way,” he said. “It can be seen as quite innovative. It won’t mean more lending to businesses by the high street banks.” He says he had concerns about small scale loans, which may end as a result of the partnership.

Chris Cummings, chief executive of TheCity UK said: “I think this partnership is a very positive thing as hopefully it will welcome different types of investment in business. It’s important to see them as complementary, not alternative, forms of finance.

“We’re starting to see a new cocktail of approaches to business finance in addition to the traditional high street and online providers. This partnership enables them to open up new opportunities. It is a win win situation as far as we’re concerned.”

He said innovative ways of working should be welcomed and the two forms of finance shouldn’t exist separately. Funding Circle launched in 2010.