Royal Bank of Scotland (RBS) is to formally refer customers to Funding Circle and other alternative finance providers.

From next week the bank will refer businesses to Funding Circle for small business loans. The high street bank accounts for 33% of the small business lending market, so is set to become the largest lender to refer small business customers.

Investors are currently lending £35 million per month on Funding Circle, making its marketplace the fourth largest net lender to small businesses in the UK.

Funding Circle and RBS have been part of the Treasury’s working group examining how best to encourage greater collaboration between high street banks and alternative finance providers.

The bank aims to expand choice for customers whose loan applications do not currently meet the bank’s criteria, by signposting them to a number of alternative finance providers. Referrals will take place during conversations that the customer will have with a relationship manager or through documents included with correspondence. The pilot begins next week in Scotland & South-West England; with a national roll-out in Business Banking following over the next three months.

Alison Rose, CEO for commercial and private banking at RBS, said: “We are committed to doing the right thing for our customers by helping them access finance where we cannot help them within our current risk appetite. I am delighted to see RBS partnering up with both Funding Circle and Assetz Capital. We are dedicated to supporting SMEs, whether they are an existing customer of RBS or not.”

Samir Desai, CEO and co-founder of Funding Circle added: “This partnership recognises our role as the largest marketplace for unsecured and secured small business lending. Partnering with the UK’s biggest small business high street lender is a huge vote of confidence in our model, and we look forward to working together to create thousands more opportunities for small businesses to access finance and grow.”