Thousands of sole traders could benefit from a new initiative to allow savers to offer them loans directly via an internet website.
The business secretary, Vince Cable, is expected to announce today that he will invest £10 million in the online savings and loans firm, zopa.com, to help it launch a service builders, decorators, and other small businesses which aren't limited companies.
"There are 3 million sole traders and they find it really difficult to borrow money," says Giles Andrews, one of Zopa’s founders, "No one specialises in them."
Traders will be able to raise thousands of pounds to pay for vehicles and equipment, at a time when bank funding is hard to come by.
Zopa is a new peer-to-peer lender, which enables savers to offer their money directly to borrowers over the internet.
They earn more than they would expect to get from a bank or building society, though without the absolute guarantee that their money will be returned.
The firm has concentrated on consumer borrowers so far but will launch the sole trader service in the New Year.
Vince Cable is also likely to put £20 million of taxpayers’ money into another peer-to-peer lender, Funding Circle, which specialises in limited companies. Other providers of alternative finance will benefit as well.
Giles Andrews expects to offer loans of between £1,000 and £15,000 at slightly higher rates than his best borrowers enjoy, because of the higher level of risk.
He will match the government money pound for pound with cash from savers. All the state funding will be paid back after two years.
The growth of peer-to-peer lending has been impressive. Zopa is on course to lend £90 million this year and hopes to get close to £200 million of loans in 2013.
On the face of it the model is risky for savers, but their money is spread between hundreds of borrowers to reduce the chance of making significant losses.
Jacob Rothschild, from the well known banking dynasty, revealed in the last few days that he had bought a stake in Zopa, saying "alternative forms of credit will be developed on a significant scale".
Lord Rothschild wouldn't reveal the size of the investment.