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Tax-free peer-to-peer lending confirms alternative finance status

The government has delivered another endorsement of the invoice-finance-led alternative finance sector with its proposal to make returns on peer-to-peer lending tax free.

While the government has backed a number of small alternative business finance schemes and indicated that the likes of invoice finance and peer-to-peer lending will play a key role in the future of the British Business Bank, news that the Chancellor is proposing to make returns on peer-to-peer lending investment tax free is the clearest signal yet of the importance of non-bank small business lending and its rivalry to SME funding from traditional lenders.

The recent decision to refocus the Funding for Lending scheme entirely on SME lending put a fresh spotlight on the continued challenge that businesses face in accessing funding and how the SME lending landscape has changed as a result. With traditional lenders failing to meet expectations in terms of providing small business loans and lending services, non-bank lending facilities, such as invoice finance and factoring, have stepped into the breach and handed businesses a financial lifeline.

While alternative finance remains the smaller player in terms of small business finance provision, in comparison with the traditional lending sector, the market share of the former continues to grow, thanks to the flexibility, transparency and accessibility of services. The growing interest of major banks in these services further underlines their mainstream status.

Following the news from No. 11 Downing Street, there can no longer be any discussion as to whether 2013 has been the year of alternative finance. Indeed, it seems that invoice finance, peer-to-peer lending and other alternative finance services will play a major role in business growth in 2014.

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