The governments Funding for Lending scheme (FLS) fell by £2.7bn over the first quarter of this year.  This indicates that the scheme to encourage banks to lend more in return for cheap funding is not working according to figures published by the Bank of England – lending to small and medium enterprises (SMEs) fell by over £723m.

The Funding for Lending Scheme was is primarily focused on business lending so why is it struggling?

“It is concerning that lending to firms across the country has continued to contract even though the Funding for Lending scheme has been refocused towards business lending,”
John Longworth, Director general of the British Chambers of Commerce
“Although more established firms have little difficulty in accessing the finance they need, the litmus test for the scheme has always been whether young and fast-growing businesses are able to get the finance they need to expand and drive the recovery, and unfortunately many of these firms remain frozen out of the market.”

“At face value, the fall in lending is disappointing, but the numbers do not tell the whole story. Banks are being asked to lend more, but also have a responsibility to rigorously assess SME loan applications in order to avoid some of the pitfalls of the past.

“There are also issues around less demand for loans directly from the banks, as alternative financing options, such as crowdfunding and peer-to-peer lending, increasingly become available to SMEs. That said, banks need to stay focused on this important area, as ensuring SMEs can readily access finance is an important driver of continued economic growth.”

It is again an example of our broken banking system.  In their attempt to recover and release funding for small an mid size businesses they are also stringent in their assessment of the application process – all too often a perfectly good small business is refused the funding they need to grow.  It’s no wonder the George Osborne is pushing the the funding for lending scheme and referal of such business to alternative funding solutions such as Business Cash Advance or Crowdfunding websites.

Alternative business funding has really taken shape and has become a competitive market to the banks.  In their own doing they have helped create a new revolution in funding small business in the UK.  Funding for lending is a positive move forward.