UK Funding For Lending Scheme Fails to Boost Loans for SMEs

big-ben-ukThe Bank has today published updated data on the use of the Funding for Lending Scheme (FLS). Today’s publication shows the net quarterly flows of lending to UK households and businesses eligible under the Scheme up to the second quarter of 2013.

The aim of the FLS is to encourage more lending to the UK economy than would have been the case in the absence of the plan.  The FLS creates incentives for banks and building societies to boost their lending to the UK real economy by reducing their funding costs, which in turn allows them to reduce the price of new loans. Market funding costs have fallen significantly since the announcement of the FLS and this has reduced the incentive to draw on FLS funding for some participants.

Publications BannerIn the quarter ending 30 June 2013, 18 participants made FLS drawdowns of £2.0 billion, while one participant repaid £0.9 billion. This took the total amount of outstanding drawings under the Scheme to £17.6 billion, with 28 groups now benefitting from funding under the Scheme. Net lending by FLS participants over the quarter was £1.6 billion, slightly stronger than in previous quarters, although net lending overall since the Scheme began remains broadly flat. One additional group joined the Scheme in 2013 Q2, taking the total number of participating groups to 41. The inclusion of that group has resulted in downward revisions to the data for total net lending by FLS participants in previous quarters.

Net lending to small and medium-sized enterprises (SMEs) was also negative in 2013 Q2, but the growth rate was less negative than for large companies.[4] Going forward, SME credit conditions should be supported by the extension to the FLS announced in April, which provides additional incentives for participants to increase lending to SMEs both this year and in 2014.[5] A large proportion of FLS participants have indicated their intention to participate in the extended Scheme.  As banks have struggled to provide financing needs to small business, alternative providers such as crowdfunding platforms and peer to peer lenders have ramped up to fill the void.

Graham WellesleyGraham Wellesley, CEO of Wellesley & Co a peer to peer lender commented on the most recent figures released by the Bank of England:

“Today’s figures highlight the on-going challenges facing SMEs in accessing credit sources from traditional lenders and is a trend that is expected to remain for the foreseeable future. Of particular concern, in light of the UK’s on-going housing crisis, is the continued decline in lending to business’ in the real-estate sector. Now, more than ever, alternative finance providers are filling this vital funding gap and playing a fundamental role in supporting the recovery of UK Plc. We’ve just completed the UK’s largest peer-to-peer loan ever at a value of £8.3million and as traditional lenders continue to retreat from this space, we are leading the charge forward. We are funding the development of new properties as well as renovation of old properties which addresses the nation’s housing supply concerns, whilst generating an average return of 6% to our customers. Although it’s called peer-to-peer lending, our industry is providing traditional banking with a modern twist.”

Phil Orford, chief executive of the Forum of Private Business,  was quoted in the FT as stating lending appetite remained subdued.

“At a time when the economy is picking up there is no doubt the figures remain slightly disappointing”.

A recent report by the UK Peer to Peer Finance Association indicated their totals for Q1 2014 had more than doubled in contrast to the same period year prior.

Paul Fisher, Executive Director for Markets at the Bank of England, said of the published report: 

“The FLS is continuing to support lending to the UK economy with a range of indicators suggesting that credit conditions are steadily improving for households and firms, and FLS participants collectively expect net lending volumes to pick up over the remainder of this year.”

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