Lending to small businesses under Bank of England's FLS falls again

 

economics editor

Net lending to small companies fell again in the second quarter of the year, despite reforms to the Funding for Lending Scheme (FLS) designed specifically to boost the flow of credit to the sector.

Data released by the Bank of England showed that participating commercial banks collectively drew down £3.2bn in cheap funding from the scheme in the three months to June. Over the same period, however, net lending to companies declined by £3.9bn. Breaking that down further, the stock of loans to big corporates was £3.5bn lower, while lending to small and medium-sized enterprises (SMEs) fell by £435m.

Chuka Umunna, the shadow Business Secretary, said the figures showed that the Government’s policy was failing small companies.

“Despite scheme after scheme and promise after promise from ministers, profitable and successful businesses still can’t get access to the finance they need to start up and grow, which is acting as a brake on our economic progress” he said.

The Bank noted that the overall contraction in net lending to SMEs was smaller than in the first quarter of the year, when net lending slipped by £719m. It also stressed that the SME figures were negatively affected, once again, by banks reducing their exposure to small real estate companies.

However, analysts said the figures were disappointing, given that the Bank and the Treasury reconfigured the FLS last year in order to boost the financial incentives for SME lending this year.

“Many of these firms remain frozen out when it comes to accessing the finance they need to fulfil their potential,” said John Longworth of the British Chambers of Commerce. “These figures reiterate that much more needs to be done to fill major gap in the provision of SME finance.”

Net SME lending from Lloyds grew by £384m in the quarter and by £99m at Santander. Aldermore increased the net figure by £118m and Investec by £136m. However, these gains  were offset by declines at Royal Bank of Scotland (£360m), Nationwide (£501m) and Clydesdale (£439m).

Other big players such as Barclays and HSBC are no longer participating in the scheme so the data provides no insight into their lending to small businesses. 

Industry lobby groups such as the British Bankers’ Association have long argued that demand for borrowing among SMEs is weak. But organisations such as the Federation of Small Businesses claim the banks are structurally biased against SME lending.

“The principal roadblock lies within the banks themselves” claimed  Ian Currie, director of the corporate finance adviser Seneca Partners.

“It’s the branch managers who have turned risk aversion into a mantra. With the knowledge that their neck would be on the line for any loans that go bad, some have even discouraged small businesses from applying.”

The FLS was launched in July 2012 and enabled banks to borrow money cheaply from the Bank of England on the condition that they increased their lending to British households and companies.

Last November, the incentives were refocused away from mortgage lending and towards business loans, in particular to SMEs.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
News
Danczuk has claimed he is a 'man of the world'
news
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor