Why Isn’t The Government’s Funding For Lending Scheme Working?

The Funding for Lending Scheme (FLS) was set up with the support of the Government, back in 2012. The scheme was designed to lend banks and building societies money from the Bank of England, at cheaper than the usual market rates for as long as four years.

This was supposed to encourage the financial institutions to make it easier for businesses to get a loan – and at competitive rates.

However, many businesses are still finding it difficult to get a loan, even if the business requesting the finance is sound and well-established. In fact, loans to non-financial companies have dropped by about £10bn per year since the financial crisis began in 2007. In light of recent economic growth and improved stability, you’d expect banks would be willing to lend more to businesses - yet traditional lending hasn’t regained momentum.

Rather than supporting SMEs and giving businesses the credit boost that the Government intended, the FLS has ended up being successful in reviving the housing market with cheap funds for mortgages instead. Some feel that High Street banks would much rather concentrate on mortgage lending instead of helping businesses.

That’s because with an improving economy, banks may feel it’s safer to lend against homes than to a business that could go bust. And, that seems to be why even viable businesses have been finding it hard to secure funds.

The Government may have recognised that the FLS isn’t working as well as it was hoped and has set up the British Business Bank specifically to help small and medium-sized businesses (SMEs).

Last year, it supported £660 million worth of lending to businesses, but it has ambitious aims to provide £10bn for smaller businesses over the next five years.

Unlike the FLS, the new British Business Bank is able to finance peer-to-peer lending companies that lend money to SMEs, challenger banks, asset-banked lenders and other alternative providers.

These include alternative business account providers. They can set up everything from a great alternative to a bank account, including a business prepaid card, to an overdraft or a merchant cash advance.

This move away from traditional High Street banks should offer real hope for those who are desperately searching for funding to grow their business.

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