SME Funding for Lending Scheme proving to be a bit of a flop

The Funding for Lending Scheme, which is an initiative by the Bank of England to ease credit woes, has so far been performing poorly among small businesses in UK despite this segment being the target people.

Based on data from the Bank of England, the net lending for the 33 banks involved in the FLS was up £5.8bn over the third quarter, an increment from the second quarter which saw £1.6bn rise. The total lending to SMEs increased by £1.5bn during the same period in the previous year. However, the increase in repayments made the net lending to become negative.

This is after the announcement that the Bank of England will no longer be supporting the flow of consumer credit through FLS, something that resulted to the decrease in the cost of mortgage borrowing at a time when there were fears of a housing bubble since this worked concurrently with the famous Help to Buy Scheme. The FLS is now dedicated for loaning businesses.

According to Paul Fisher who a Bank of England’s executive director for markets, the recovery of the economy has started taking place. The information from the bank shows that there has been tremendous improvements in credit conditions thanks for the FLS that is helping the economy through lending. However, the supply of credit for SMEs seems to be stagnating according to Paul Fisher. He added that shifting the focus for the scheme will ultimately result to enhanced economic recovery.

Through the FLS, banks can access loans from the Bank of England cheaply in “wholesale” up to a certain value that is determined by the allocation to lending SMEs. The bank’s chancellor had weighted the viability of the scheme in helping business lending. The inefficient flow of credit among UK businesses is one of the reasons for slow economic growth.

Failure to get affordable financing by SMEs makes it hard for them to invest in expansions and in their labour force. The FLS isn’t the only initiative for small businesses. The government needs to spur small business growth through incentives. As at now, banks are the only ones that can access funding through FLS. FSB (Federation for Small Businesses) is lobbying the government to make the scheme open for other financiers like peer to peer lending specialists.