Funding for Lending – the UK government’s flagship scheme for boosting access to finance for young, growing firms – has been extended for two years until January 2018. Managed by the Bank of England (BoE), the initiative will now have a longer wind-down period, during which it will focus attention where it is most needed.
BoE data gathered from UK banks and building societies indicates that lending to SMEs this year has so far increased by £2.1bn. In addition, the Bank noted, recent research from the Federation of Small Businesses showed that SMEs have experienced tangible improvements in credit affordability.
Furthermore, respondents to the Bank’s latest Credit Conditions Survey reported that both credit spreads and fees and commissions to small companies had fallen in the third quarter – although they increased slightly for medium-sized firms.
Despite those broadly positive findings, though, other BoE data has shown that credit conditions for SMEs remain notably tighter than they are for large corporations. Indeed, while there has been a moderate rise in some measures over the past few months, conditions remain significantly lower than at the time Funding for Lending Scheme was launched in 2012.
BoE governor Mark Carney explained: “As conditions have normalised for particular sectors over the life of the [initiative], we have consistently reduced the scope of this temporary scheme and focused support where it is needed most.”
The extension, he said, “continues that tapering, supporting continued improvement in SME credit conditions as the economic recovery takes hold”.
Chancellor George Osborne added: “As our long-term economic plan moves from rescue to rebuild, it is right that we continue to focus the scheme’s firepower on the small businesses that are the lifeblood of the economy.
“The Funding for Lending Scheme will be gradually wound down as the recovery strengthens, delivering a managed exit.”
Reacting to the extension, the British Bankers’ Association (BBA) said that it welcomed the measure and cited the BoE’s largely upbeat figures as evidence that banks are helping SMEs to drive economic growth and create jobs.
“Lenders are using [the scheme] to lower borrowing costs for businesses and offer a range of competitive deals at a time when interest rates are at a record low,” a BBA spokesperson said.
“Borrowers should feel confident about applying to their bank for finance,” he added. “While the proportion of SMEs feeling confident that their bank will approve a borrowing request has steadily grown to 60%, the SME Finance Monitor shows that eight out of 10 businesses applying for loans and overdrafts are actually successful.
“Nearly all renewal applications are approved, as are 70% of applications for new money.”