Belfast Telegraph

Friday 1 August 2014

SMEs 'struggling to obtain loans'

Small businesses are still struggling to obtain finance despite lending under a flagship Bank of England initiative more than tripling during the third quarter

Small businesses are still struggling to obtain finance despite lending under a flagship Bank of England initiative more than tripling during the third quarter.

The Bank said corporate credit conditions remained "relatively subdued" even though net lending by 42 banks and building societies in the Funding for Lending (FLS) scheme increased to £5.8 billion.

This was the biggest increase since FLS was launched in June last year and up from £1.6 billion in the second quarter.

While mortgage borrowing conditions have been eased by FLS, small businesses - whose success is seen as key to economic recovery - are still struggling to borrow much-needed cash.

The scheme was launched last summer, offering cheap finance to lenders to match the loans they provide for households and businesses.

But its success in boosting the housing market was not matched in the small and medium enterprise (SME) a rea, prompting policymakers to skew FLS in favour of these firms by multiplying the incentives on offer for lending in that sector.

Last week, the household element of the scheme was scrapped altogether in an attempt to put the brakes on the surging property market, and the scheme further re-focused on SMEs.

The latest figures include a significant boost to net lending figures by state-backed Lloyds, where the figure increased from £1.3 billion in the second quarter to £3.1 billion in the third quarter. Nationwide's net lending rose to £2.7 billion.

Meanwhile the troubled Co-operative Bank, which is facing a £1.5 billion hole in its finances, reduced lending by a net £678 million, up from an £85 million cut in the second quarter.

Banks have drawn down £23.1 billion of cheap funds since the scheme started and net lending by participants has now become positive for the first time, at £3.6 billion.

Paul Fisher, executive director for markets at the Bank of England, said: "An economic recovery has taken hold. These data show that a significant improvement in credit conditions, aided by the FLS, is now feeding through to lending.

"But credit supply to businesses remains relatively subdued, especially to SMEs. The refocus of the FLS is designed to continue to support the recovery, where it is needed."

The remarks suggest that while the 42 banks and building societies participating in the scheme have increased their lending, the money is still not going where those behind the scheme want it to go.

Previously-published quarterly figures for all sterling lending to households and businesses for the third quarter show it rose on a net basis by £8.7 billion, compared to a £3.6 billion fall in the second quarter.

This was made up of a £5.1 billion increase for households, up from £2.9 billion, and a £3.6 billion increase for businesses, up from a £6.5 billion fall.

But a separate measure of SME financing by UK lenders - including loans in all currencies but excluding some market-based debt securities - showed it fell by £1.4 billion, more than double the fall in the second quarter.

The latest FLS figures do not provide a breakdown between SME and other types of loans.

John Longworth, Director General of the British Chambers of Commerce (BCC), said: "It is really encouraging that overall lending is rising, as this will boost the confidence of businesses across the UK.

"However, the real litmus test for the Funding for Lending scheme is whether it can really get finance flowing to SMEs."

Steve Radley, policy director at EEF, the manufacturers' organisation, said: "Last week's move to focus FLS on business lending was the right one."

A Treasury spokesman said: "Today's data release is further evidence that the Governments long-term economic plan is working to deliver a responsible recovery."

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