Business Secretary Vince Cable is due to name four innovative lenders on Wednesday which have won a share of a £100m public investment, the Daily Telegraph understands.
The £100m fund is part of the £1.2bn Business Finance Partnership, a Government drive to diversify the sources of finance available to businesses.
Funding Circle is a so called ‘peer-to-peer’ lender which directly links retail investors with credit-starved small companies. Zopa does the same for consumer borrowers but is expected to extend its service to sole traders to qualify for the investment.
It is understood that Funding Circle will be given an initial £20m, which will be lent in conjunction with cash invested by consumer users of the site.
The Government will pay the same fees as the site’s consumer lenders and will receive a similar rate of interest on lending.
Since the successful bidders are being given around five years to pay the investment back, the finance firms are hoping to ‘recycle’ the public money through a number of loans over the coming years.
Zopa is thought to have received an investment of around £10m.
The other successful bidders are understood to include the UK arm of American lender Boost Capital, which specialises in advancing cash against future credit and debit card sales. Boost is also expected to receive around £20m.
A further £300m could be made available to so called ‘challenger banks’ like Aldermore and non-bank lenders over the next two years through the Government’s Business Bank.
The Bank, which was announced by Mr Cable in September, is expected to provide cheap wholesale money to alternative lenders.
The investment in Zopa and Funding Circle follows news that the Government intends to regulate the fledgling peer to peer sector, a move which the industry described as a “watershed moment” in its ambition to rival mainstream lenders.
