SME lending under government scheme falls again

Lending to SMEs under the government's Funding for Lending (FLS) scheme fell by £435 million in Q2 2014, according to the latest figures from the Bank of England (BoE).

Large corporates borrowed £3.5 billion less under the scheme in the second quarter of the year, meaning net lending to all businesses fell by almost £4 billion on the quarter.

Banks and building societies that participate in the FLS can borrow from the BoE at lower-than-market rates, which is intended to encourage them to pass on cheaper lending to businesses. In November 2013, the government announced it was refocusing the scheme specifically on SME lending in 2014.

Despite this, lending to SMEs has now fallen for 2 consecutive quarters after a £719 million drop in the first quarter of this year.

Industry expresses disappointment

At the Federation of Small Businesses, national chairman John Allan said of the figures:

"Small firms are increasingly confident across every sector, and in every region. But these new Funding for Lending figures again show that growth ambitions are not being translated into demand for finance, especially for smaller businesses that have not been able to capitalise on cheaper credit."

Phil Orford, chief executive of the Forum of Private Business, said:

"These figures would surely be worse still if Funding for Lending was not in place, and it is true there is a weakness in demand, but it remains disappointing to see less money being lent in this crucial part of the economy. Without more lending to small businesses their growth and the country's growth will remain slow."

And the British Chambers of Commerce director general, John Longworth, commented:

"Although the decline in lending to SMEs was less than in the previous quarter, Funding for Lending continues to disappoint. Despite the welcome re-focus towards SME lending, the real test for the scheme has always been whether it is able to get credit flowing to young and fast-growing businesses. Unfortunately many of these firms remain frozen out when it comes to accessing the finance they need to fulfil their potential."

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