News Column

Loans scheme for businesses still in doldrums: Funding for Lending 'not giving access to finance': Worst figures at Clydesdale Nationwide and RBS

August 29, 2014

Angela Monaghan



Business lending remains in the doldrums despite the economic recovery after the Bank of England's Funding for Lending Scheme (FLS) recorded another poor performance in the second quarter.

In a blow for the scheme, which is designed to give companies greater access to the finance they need to expand, net lending by banks involved in the programme fell to minus pounds 3.9bn between April and June, dropping below the -pounds 2.7bn in the first quarter. Net lending to small and medium-sized enterprises (SMEs) was -pounds 435m, compared with -pounds 719m in the first quarter according to the Bank's latest figures.

Under the FLS, banks can access cheap loans on the condition they lend to businesses. They can borrow pounds 5 from the Bank for every pounds 1 of net lending to SMEs. The hope at Threadneedle Street and within the Treasury was that it would open up a financial lifeline for companies, enabling them to invest and boost the economy.

Chuka Umunna, the shadow business secretary, said the lack of lending to Britain's smaller companies was holding back the economy. "Today's figures show that despite scheme after scheme and promise after promise from ministers, profitable and successful businesses still can't get access to the finance they need to start up and grow, which is acting as a brake on our economic progress," he said.

Of the 36 banks participating in the scheme, net lending to SMEs was either flat or worse among 24 banks. The worst figure was at Nationwide, where net lending to SMEs was -pounds 501m in the second quarter, followed by Clydesdale, where net lending was -pounds 439m, and bailed-out RBS, where lending to SMEs was -pounds 360m.

On the positive side, state-backed Lloyds Banking Group had positive net lending to SMEs of pounds 384m between April and June. A spokesman for Lloyds said the group's net lending growth to SMEs was almost pounds 1bn over the first half of 2014, more than any other bank participating in the scheme.

"Through our participation in FLS we continue to offer 1% discounts on loans to all our SME customers, and that is helping us continue to grow our lending to the sector, by 5% a year, net, at a time when SME lending across the banking industry is still falling," he said.

John Longworth, director general of business lobby group the British Chambers of Commerce, said the FLS had failed in its attempt to help many of the UK's smaller companies: "The real test for the scheme has always been whether it is able to get credit flowing to young and fast-growing businesses. Unfortunately many of these firms remain frozen out when it comes to accessing the finance they need to fulfil their potential.

"These figures reiterate that much more needs to be done to fill major gaps in the provision of SME finance in the UK, including increasing the role of equity and bond markets and delivering a business bank with a greater capital base than under current plans and the ability to lend directly to businesses."

In November, Bank of England governor Mark Carney announced that the FLS would be entirely focused on business loans, with household lending, including mortgages, no longer eligible for the scheme. The move was seen as an attempt to take some of the heat out of the market amid rapidly rising house prices.

The scheme was launched in August 2012 to encourage banks and building societies to lend more to households and businesses.

The Bank said yesterday: "Some of the weakness in bank lending to smaller businesses, which has persisted despite the fall in bank funding costs, may reflect weaker demand. The FLS extension will continue to support lending to SMEs in [the second half of] 2014."

But James Meekings, co-founder of Funding Circle, which provide loans to businesses from alternative sources such as peer-to-peer lending - connecting businesses directly with individuals willing to offer loans - said the traditional model of bank lending to companies was not working.

"Funding for Lending is failing to help the thousands of British businesses that need finance but can't access it," he said.

"It is time to accept that these types of support facilities, using banks as the primary distribution channel, are no longer the answer.

"Alternative sources of finance, like peer-to-peer lending, are proving a better way for the government to get finance through to hard-working businesses. Together we're creating a more diverse and fairer financial system which is better for both businesses and investors."

Captions:

Shadow business secretary Chuka Umunna said failings in the lending scheme were 'a brake on our economic progress'



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Source: Guardian (UK)


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