The deal will see Aegon fund £160m of loans in the first 12 months, with the intention of extending this into a four year funding programme.
Aegon has stated that in the first year the investment will help approximately 2,600 UK businesses access finance, creating an estimated 6,400 new jobs.
Stephen Barclay, economic secretary to the Treasury, said: “Small businesses are the lifeblood of our economy and it’s fantastic news that Aegon are investing through Funding Circle to help them thrive and grow.
“This partnership with one of the UK’s largest fintech firms is further proof that the UK remains the global leader in fintech.
“Aegon’s venture also shows that there is significant appetite for inward investment into the UK and we hope to see more deals of this scale in the future.”
Funding Circle allows any investor to lend directly to small businesses.
To date it has facilitated more than £2.5bn of loans to 26,000 businesses in the UK.
Samir Desai, chief executive and co-founder of Funding Circle said: “This partnership is validation of the attractive risk-adjusted returns that are being generated to investors by lending through Funding Circle.
“Now investors of all shapes and sizes can benefit from the stability of the asset class whilst also providing much-needed job creation and economic growth.
“We hope our joint programme with Aegon will develop to deliver increased lending to UK small businesses over the coming years.”
Mike de Boer, chief financial officer of Aegon Bank NV, said: “The strategic partnership we have signed with Funding Circle is another important step in the strategy of Aegon to cooperate with fintech partners in the direct lending landscape.
“This partnership gives Aegon access to attractive small business loans over the next four years, which helps to further diversify our investment portfolio.”