FM Analysis

Can the banks deliver the Funding for Lending scheme for SMEs?

Edward Winterton, commercial director at Bibby Financial Services

The plethora of different funding initiatives announced by the Government over recent years has done much to make headlines, but less, it seems, to help those small and medium-sized businesses in most need of financial support. Following the launch of the Funding for Lending scheme, Edward Winterton, commercial director at Bibby Financial Services, has reservations that the scheme will benefit the businesses that need the funding the most.

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any business owners have experienced credit restrictions during the downturn of the UK economy and continue to be frustrated by a lack of access to funds. We have recently

surveyed 1,000 UK small and medium-sized enterprises (SMEs) and have found that nearly one in three (32 per cent) firms have been unable to secure finance in the past 12 months, with just nine per cent receiving the amount of funding they applied for. This is all at a time when Britain’s recovery depends on companies being able to access the finance they need to invest and grow.

Early in 2012 the Department of Business, Innovation & Skills commissioned Tim Breedon to examine the UK’s financial landscape, with a particular focus on non-bank lending, to determine how it could better support the needs of British businesses. Despite one of the main recommendations from the Breedon Report being to increase awareness and demand for alternative forms of finance, the Funding for Lending scheme is another plan that has been placed in the hands of the banks.

The scheme has been launched as a way to kick start the economy with £80billion pumped in by the Bank of England to provide low-cost borrowing for banks and building societies, with

the idea that these savings are passed on to businesses.

However, there is no guarantee the scheme will reach the businesses which need the funding the most. In superseding the National Loan Guarantee Scheme, Funding for Lending demonstrates that the Government’s approach to supporting small businesses has not been successful so far.

This is highlighted by the worrying fact that net bank lending to SMEs has fallen in every quarter since this government has been in charge, a drop of £10.7 billion in the last year. Despite this and the findings of the Breedon Report, the coalition continues to believe that banks are best placed to address the shortfall in funding to small businesses.

The Government’s insistence to channel funding streams through the banks in an attempt to support businesses is failing to address the core issue – what is being done to support firms which have been, and are continuing to be overlooked by the banks.

Questions must be asked as to whether an increase in the availability of low-cost funds from the bank will do anything to benefit those businesses which are classified by traditional lenders as ‘high-risk’.

To address this issue the Bank of England must closely monitor not only the levels of lending to businesses, but where the money is going to ensure this scheme does not become another of the Government’s ineffective funding projects

There is definitely a growing need for the Government, financial introducers, alternative funding providers and traditional lenders such as the banks to do more to educate business owners on the range of financial options available to them. More companies need to be aware that if they are turned down for a bank loan or overdraft, that there are other avenues they can go down.

On top of this, the Government needs to focus on building business confidence and encouraging more firms to invest in growth, be it with the support from the banks or from alternative funding providers. Alternative finance does not mean turning away from bank lending entirely, but SMEs should be aware of how different types of funding can be used in collaboration.

Outstripping the market with a ten per cent growth in deal numbers in the past financial year and lending £342 million to SMEs, Bibby Financial Services is well placed to help businesses grow with our range of innovative and flexible products and an open minded approach to lending.