The government's "Funding for Lending" programme comes into operation today; but will it really help SMEs?
As of this morning, Britain's banks can start tapping into a new government programme that will offer them cheap funding designed to get more credit to flow through the economy.
The Treasury says that the £80bn scheme, which offers funding at below-market rates against a broad range of collateral if banks continue or extend lending to businesses and consumers, is likely to ultimately replace earlier credit-easing schemes.
Chancellor George Osborne says: "The more generous Funding for Lending scheme has officially opened for business and will, in time, effectively take over from the National Loan Guarantee Scheme, delivering credit easing to the whole economy."
Some analysts fear that the loans made available to SMEs through the Funding for Lending scheme will be "less affordable" than those under the credit-easing scheme, as there is no obligation for banks to pass on the government discount.
"The main objective for any government-backed scheme should be to ensure that the finance actually gets through to small firms," says John Walker, national chairman of the Federation of Small Businesses.
"Four in 10 small firms were refused in the second quarter and this needs to change if the economy is to grow. Communication will be key – whatever the name of the scheme – to ensure that businesses actually benefit from it."
The Funding for Lending scheme draw-down window will be open for the next 18 months. Once they have been accepted into the scheme, banks and building societies can borrow at cheaper rates for periods of up to four years.