The British government has poured a £40 million investment into Funding Circle for the provision of loans to small and medium-sized businesses (SMBs) in the country. This move signals a positive step towards acceptance of alternative financing in the UK, according to The Financial Times.

The new funding comes after the British Business Bank provided a £20 million state investment in Funding Circle last year, the report added.

Under the terms of the investment deal, the UK government will allow Funding Circle to choose which businesses receive loans. For every loan that the company grants, the government will provide 10% of the required amount for the transaction. The government will earn varied returns on, depending on the interest rates set by loan providers, the report detailed.

Business secretary Vince Cable said: "Too much business lending is concentrated in the big banks. If we're to have a properly functioning business lending market, they need to be challenged by new banks, peer-to-peer lenders and other alternative providers."

Peer-to-peer lending in the UK has started as almost nothing in the alternative finance industry. Now, its lending capacity has expanded to almost £1billion, The Financial Times reported.