Funding for Lending Scheme Failing Small Business?

The Funding for Lending Scheme (FLS) launched by HM Treasury and The Bank of England last year, has come in for criticism as official lending figures for the last quarter of 2012 are released.

Funding for Lending Scheme usage and lending data has shown that whilst the banks drew down £9.5 billion their net lending was actually down by around £2.4 billion.

So far the banks and building societies in the scheme have tapped into £13.8 billion since the launch of FLS. It was estimated that £80 billion would be drawn down.

The scheme is supposed to incentivise banks to lend to home owners and small businesses by lending government money to them at a reduced rates, thereby redcung their banking/lending costs but, as Business Minister Vince Cable has said, FLS needs some "adjusting".

The Bank of England has defended the slow rate of lending to small businesses saying that:

"…it takes time for reduced funding costs to feed through to lending volumes, given the typical lags involved in the loan application, approval and drawdown process."

Katja Hall, Chief Policy Director at business group CBI, also defended the figures, saying:

“Despite the headline fall in lending, businesses tell us the scheme is having a positive impact on the cost of finance. So far the effect has been strongest in the housing market, but businesses are also benefiting.”

“We must remember that the scheme is operating against the headwinds of bank deleveraging and muted confidence in the economy, which are reflected in the headline lending figures.”

Speaking about alternatives to the big name lenders, Hall added:

“It’s particularly encouraging to see that several newer entrants have increased their lending, boosting competition and choice in the market.”

Metro Bank is one of what Katja Hall calls the "new entrants" and Craig Donaldson, the Chief Executive of Metro Bank also commented on the figures from the Bank of England:

“The Funding for Lending Scheme was introduced to help stimulate our economy through increasing lending to individuals and small businesses. Today’s figures show that there’s certainly more work to be done with some of the market players, but Metro Bank is a great example of how the scheme is working and we’re very proud of that.”

Donaldson, however, was quick to point out the perception that customers are tired of the way they believe banking has become more about the profit that banks can make than actually providing a decent service:

“Banks must wake up to the fact that they are here to serve customers, not the other way around. We see customers day in and day out looking for sensible lending support from their banks, and this is a message to the market that we’re open for lending and want to do our part to support personal and business customers.”

The news of the stifled Funding for Lending Scheme comes hot on the heels of an independent study that priased the Enterprise Finance Guarantee (EFG) scheme, which has been seen to add over a billion pounds to the UK economy as well as both saving and creating jobs.

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