The funding, which will be made available over the next two years, is part of the government’s £1bn Business Finance Partnership initiative, announced in Autumn 2011.

The scheme is designed to increase access to finance with the government co-investing, alongside other investors, in loans to small businesses through non-traditional, unsecured platforms, such as peer-to-peer lending, supply chain and mezzanine finance schemes that focus on SMEs.

Peer-to-peer lending is usually done online with lenders and borrowers doing business without a ‘middle-man’, such as a traditional bank. Supply chain finance refers to structures used to improve cash flow by managing payments to suppliers, while a mezzanine scheme is a combination of debt and equity finance usually used to support high-growth businesses.

Loans made available through the scheme will be accessible to any UK business, in any sector, provided they have a turnover that is below an average of £75m over three years. The Department for Business, Innovation and Skills (BIS) and HM Treasury will contribute up to 50% - more likely 25-30% – of any loan.

Businesses can select the length of the repayment terms at the time of application and investors receive back a proportion of their principal stake, plus interest, every month, managed by the lending platform.

Announcing the initiative, business secretary Vince Cable said: "As businesses are continuing to struggle to get credit from their banks, developing alternative lending channels so firms are less reliant on banks is essential.

"The Business Finance Partnership will help to develop these channels over the medium term so businesses seeking credit have more options available to them. Our aim is to create a more diverse financial infrastructure which better serves the needs of our small and medium-sized companies."

BPIF public affairs adviser Andrew Brown said it was positive to have another option for small firms to gain access to funds. "There is evidence that equipment in the industry is becoming over extended as people are prolonging the lifetime of their kit, because they are delaying investment decisions or struggling to get loans, so this provides another potential financing stream for them.

But he warned that a big issue remained the ability of the borrowing company to repay the loan in the current market conditions and said businesses should investigate all options. "Companies would be well-advised to take the time to shop around. The lending market is changing; there are smaller banks that only do commercial lending that are keen to win new business and are willing to cut a good deal."