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axeYes, we know the crowdfunding hype, but Funding Circle, the small business P2P lender, just cut its rates.

The rate cut came in a kind of backhanded way on Jan. 26. That was when Funding Circle launched a “fractional loan marketplace” for lenders. Included in that announcement was this factoid: “[I]nvestors can now buy fractional pieces of secured small business loans ranging in … term from one to five years, with coupon rates of 5.99-20.99%.”

It’s the one-year term and 5.99% that matter. See, it turns out that Funding Circle introduced a one-year, 5.99% term commercial loan on that day, too. The lowest rate Funding Circle offered previously was 8.99%. (Funding Circle kept its top rate at 20.99%.) Additionally, Funding Circle had offered loans with terms no shorter than two years.

A 300 basis point rate cut is massive. Funding Circle declined to say exactly why it cut its prices, saying only that “the new one-year term extends the options available to our small business borrowers for fast and affordable financing.”

No doubt the move must have been made, in part, to keep pace with Lending Club’s small business loan rates, which start at 5.9%.

Further, while Funding Circle declined to say how much this rate cut was in response to a need for more adoption and/or originations volume, the 300 bps should help. We asked Lendio what small business loan rates are going for these days and they responded, “as low as about 6%, as high as about 20%,” which means Funding Circle was above market with its pricing.

The average loan rate in Funding Circle’s portfolio today is about 12%, according to the company, which has originated approximately $800 million since its 2013 launch.

Interestingly, these changes are coming to Funding Circle as none other than the federal government is getting into the alternative lending game. Just today the Small Business Administration introduced LINC, which matches SBA lenders with borrowers online. (We tested it out; it’s not bad.) SBA loans generally cost less than 10% — within Funding Circle’s new pricing model, it seems.

Learn about alternative lending at Bank Innovation 2015 on March 2-3 in Seattle. Request your invitation here.

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