UK government will lend to business through peer-to-peer website

LONDON Dec 12 (Reuters) - Britain is to lend 20 million pounds ($32 million) to small businesses through peer-to-peer lender Funding Circle, the online financier said on Wednesday.

The loans will be part of the government's broader 1.2 billion pound Business Finance Partnership, announced in May, to help to improve the flow of credit to businesses.

The government said at the time that it planned to pump 100 million pounds through non-traditional channels.

Business Secretary Vince Cable was set to announce on Wednesday which other providers it will be lending through.

"Small and medium-sized businesses need access to a diverse range of finance options, including non-bank lending. These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market," Cable said in a statement.

Peer-to-peer lending, where members of the public lend to businesses and individuals, is among a host of alternative financing models that have developed in response to reduced bank lending to small and medium-sized enterprises because of tougher capital rules and greater regulatory scrutiny.

More than 60 million pounds has been lent to businesses through Funding Circle since it was founded in August 2010.

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

Peer-to-peer lenders last week welcomed a commitment by the government to bring their industry under regulation from April 2014, a move that they believe will help the market to flourish.