If a business’ application is turned down – for instance if they are too risky for the bank or if they operate in a sector which the bank is cutting back on – then RBS can ask the firm if it wants to be referred on to Funding Circle or Assetz Capital.
“We’re very good at being able to accurately assess risk and to price it. There are some grades of credit which banks wouldn’t lend to, but we are able to price those and give access to credit,” Funding Circle’s chief Samir Desai told City A.M.
Banks have been cutting back on risky lending since the financial crisis began, leaving some firms and politicians angry at the squeeze on credit.
“It is not the banks’ fault. The capital adequacy rules, which are about banking stability, have had unintended consequences which mean perfectly fundable firms are not funded,” said Stuart Law from Assetz Capital.
The peer-to-peer lenders are in talks with the other big banks about similar deals. The government wants to have a formal referral system in place by 2017.