Bank of England’s Funding for Lending scheme extended to 2018
The Chancellor and the Governor of the Bank of England have announced that the Funding for Lending Scheme (FLS) is due to be extended once more.
The scheme, which aims to encourage banks to increase their lending to businesses, will now run until January 2018, albeit with a sharper focus on smaller businesses. It was first introduced in mid-2012 and intended to run over 18 months until the end of January 2014. It was then extended for the first time, initially until January 2016.
The scheme essentially works by allowing banks access to cheap funds from the Bank of England, providing they lend to British businesses and households. The scheme was amended at the start of 2014 to exclude household loans such as mortgages in order to focus on small businesses.
The new extension will see the scheme gradually phased out, with the amounts that participating banks can draw down reducing over time. Smaller ‘challenger’ banks will, however, be given greater access to the scheme. Bank of England Governor Mark Carney revealed that the scheme has slowly had its scope reduced so as to focus on those who need its assistance most.
Access to funding is one of the biggest problems faced by SMEs and one that can lead to financial problems and even company insolvency. Having access to finance provides much needed relief therefore for firms considering their options.
Despite the extensions, figures released by the BoE showed that net lending under the scheme had actually slumped last year. Lending fell by £810 million in the final quarter of 2014 and by just under £2 billion over the year.
John Allan, of the Federation of Small Businesses, believes that smaller firms are increasingly bypassing the big high street banks when looking for funding, instead using their own resources and choosing to pay down their debts rather than increasing them.
By Phil Smith