MPs critical of SME finance support

A group of MPs have launched a scathing attack on the way funding is provided to small and medium-sized enterprises, despite government efforts to boost lending.


The Public Accounts Committee (PAC) stated that net lending using the Funding for Lending scheme had fallen by £2.3 billion since the middle of 2012.


They were critical of efforts to understand where support is needed, while the government claimed the report does not reflect reality.


In real terms, access to finance is a massive issue for many SMEs as they require the funds to stave off serious financial problems, although turning to experienced insolvency practitioners can actually be a wise move in some cases.


Funding for Lending was launched between the Bank of England and the Treasury to boost lending and it enables banks and building societies to borrow money cheaply.


Moving the money to where it is most needed


That money is subsequently loaned out to businesses at a low rate, although Bank of England figures suggest lending is falling rapidly – the period of September through November 2013 saw a drop of £4.3bn.


Various reports suggest that SMEs could be the driving factor in any economic recovery, but the lack of lending suggests plenty needs to be done for this to occur.


A lack of finance can limit expansion and development and place additional financial strain in circumstances where bills remain outstanding.


The PAC report was also highly critical of the Enterprise Finance Scheme, set up by the government to help businesses who have been turned down for bank loans.


Since 2010, every year has seen a drop in both the number and value of the loans available via the scheme and there are concerns that both schemes fail to address the key issues.


While business lending did continue to fall in 2013 by £1.1bn a month, it showed an improvement on the 2012 figures where it was falling by £1.5bn a month.


It suggests an improving situation, while the increasing number of businesses that are choosing their own routes to finance suggests likewise.


The committee of MPs also highlighted the importance of the British Business Bank as being a deciding influence on business lending, thanks to the £1bn of capital at its disposal.


Access to finance could potentially influence the speed at which the economy recovers, while the government will be expected to show the success of the schemes in light of the recent PAC report.


By Phil Smith


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