Funding for Lending Still Failing Small Businesses

Flagship lending scheme continues to fail UK SMEs…

Figures from HM Treasury and The Bank of England for Q1 of 2013 show that the Funding for Lending Scheme (FLS) is continuing to fail small businesses.

The scheme, launched in July last year, was expected to boost lending to small firms by offering reduced rate finance to institutions in return for their offering of reduced rates to the business sector.

Whilst £16.5 billion has been drawn by lenders from the scheme since its inception less than that amount has been lent to homebuyers and businesses. In Q1 of 2013 banks lent £300 million less to businesses despite taking £2.7 billion more from the scheme.

Banks have been criticised for borrowing more from the scheme and yet lending less to their business customers with tax-payer bailed-out Royal Bank of Scotland and Lloyds Banking Group reducing lending to customers by £10.5 billion over the last year.

It was only March when Vince Cable admitted that Funding for Lending was not having the impact oin the economy that was expected and stated that the scheme would need "adjusting".

In May the scheme, which was due to end in January 2014, was extended until 2015.

The Bank of England has said that the level of lending has been expected with Paul Fisher, Executive Director for Markets at the Bank of England, saying:

“The picture of flat lending growth overall is broadly as expected at this stage reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending. The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013.”

Craig Donaldson, the Chief Executive Officer of Metro Bank, one of the country’s newest banks was upbeat about his own bank’s performance;

“We’ve increased our lending by 219%. Our lending growth is a message to SMEs that there is lending to be had if they look in the right places.”

Donaldson added that he was dissapointed with the overall figures from the sector and called on the other banks to do more:

“It’s frustrating to see banks drawing down funds from the FLS and then not lending as they should. Flat lending growth will not provide the stimulus that our economy and businesses need to grow and expand. We urge banks to think about the economy more widely, and to actually do their part to support their customers.”

The CBI recognised that whilst net ledning had fallen by £0.3 billion this was a marked improvement over the previous quarter where lending was down by £2.4 billion.

Matthew Fell, the CBI’s Director for Competitive Markets, said:

“Funding for Lending is reducing the cost of finance for businesses and households, despite disappointing lending figures overall. There are substantial headwinds hampering lending, including a lack of confidence amongst businesses and deleveraging by banks.”

Fell encourgaed SMEs to also look elsewhere for additional sources of alternative finance, adding:”

“Funding for Lending is only one part of ensuring growing firms have the finance they need and businesses should also consider other available options, like equity finance or retail bonds.”

The CBI has recently published a guide for SMEs entitled Ripe for the Picking: a Guide to Alternative Sources of Finance.

Related Articles

You can read more about alternative sourrces of finance in our business adbvice articles 7 Ways to raise £100,000 in Today’s Economy, Time to Fill the Funding Gap and the business blog post Alternatives to High Street Banks.

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