Is the Funding for Lending scheme a success? » SMEInsider

Is the Funding for Lending scheme a success?

Funding for Lending (FLS) was launched by the Bank of England (BoE) and HM Treasury on 13th July 2012. By awarding funds to national banks, the BoE hoped that the money would be passed down to citizens who needed a mortgage or business loan.

The overall mission plan for FLS changed in 2014, with SMEs becoming the main recipient of the scheme. In exchange for collateral, small business owners would be able to gain extra cash to help improve the state of their company.

During 2014 FLS suffered a severe decline in activity, with net lending decreasing by over £800m during the final economic quarter.

In total, the FLS suffered a £2bn decline during 2014, increasing calls for the scheme to be scrapped. The Labour party hit out at the scheme in response to George Osborne extending the project to at least January 2016.

Labelling the scheme ‘‘deeply disappointing’’, Labour’s shadow financial secretary Cathy Jamieson insisted that ‘‘Labour’s better plan will establish a proper British investment bank and ensure we have more competition in our banking sector so that SMEs  get the funding they need to expand and create more good jobs.”

Despite suffering a horrendous 2014, the FLS scheme picked up dramatically within the first few months of the new year.

In May, the BoE released its quarterly figures, showing that funding to small business owners picked up considerably.

The report shows that net lending to SMEs increased by £635m within the first 3 months of the year, with Lloyds being named as the biggest contributor, contributing £425m to small and microbusiness owners.

Despite having a successful 2015 so far, the BoE has come under fire from the lending community. Rishi Khosla, CEO of business lending organisation OakNorth, has a mixed opinion regarding FLS.

‘‘The Funding for Lending Scheme launched at a time when there was a lack of liquidity in the market and the scheme provided funding for banks to lend.’’

Khosla adds that over the past 18 months, small business owners have been struggling to gain necessary funding, but feels that there is still an opportunity for FLS to help underserved businesses.

‘‘However, given the stronger economic situation, coupled with a political will to increase funding to SMEs and increase competition in the banking market, extending the Funding for Lending Scheme beyond January 2016 could be particularly beneficial; it just needs