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Funding for Lending fails SMEs, but it isn’t all bad news

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Tomorrow marks the anniversary of the announcement of Funding for Lending, a scheme designed to encourage banks to increase lending, both to small businesses and consumers. But has it all been worth it?

The Bank of England (BoE) has made billions of pounds in financing for banks available through Funding for Lending, partly in response to many small businesses’ ongoing struggle to secure funding. But figures released last month showed that lending had fallen by £300m in the first quarter of this year.

In total net lending has fallen by £1.8bn in total since the scheme came into effect last August, despite £16.8bn being made available by the BoE.

Justin Urquhart-Stewart, co-founder of Seven Investment Management, says: “Unfortunately, the banks aren’t working, nor are they going to be working for about the next decade.”

But while Funding for Lending seems to have failed in its mission to get banks to lend, it could be argued that it has benefitted other, non-traditional, forms of lending.

Adam Tavener, of pensionledfunding.com, thinks that Funding for Lending has created greater debate over sources of business funding, encouraging people to look beyond the banks when searching for finance. 

“Without question, the answer is increasingly the alternative lending sector, whether by business owners backing themselves through pension-led funding, or seeking the help of others via peer-to-peer lending or crowdsourcing.” he says.

Peer-to-peer lending is expected to reach £500m this year, and pension-led funding has now passed £250m. Invoice financing has also had a strong showing recently.

Tavener adds: “It’s a change of mindset to lending that is required and, possibly, even creating a code of practice to encourage behavioural change based on wider corporate and social responsibility.

“There is a particular need to focus on outcomes, rather than the current inward-looking culture which automatically rejects applications for funding which don’t meet the very similar criteria applied by all the big players in the SME banking sector.”

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