By Daniel Hunter

The first anniversary of the government’s Funding for Lending Scheme (FLS) is worth celebrating, but not for reasons the government would expect, according to

The scheme, first announced on 13 July 2012, aims to boost financial support by traditional lenders to the UK’s small to medium-sized enterprises (SMEs). However, lending to non-financial businesses through the scheme has fallen by a total of £1.8bn since it began. Despite this, FLS has proved to be good news for the alternative lending sector and pension-led funding in particular.

“Whilst FLS may not have been successful in its primary task of increasing bank and other traditional lending to the largest sector of the UK economy, it has done a significant amount to stimulate the debate about who small businesses should turn to when sourcing working capital and boosting growth," According to’s Adam Tavener.

"Without question, the answer is increasingly the alternative lending sector, whether by business owners backing themselves through pension-led funding, or seeking the help of others via peer-to-peer lending or crowdsourcing.”

Net lending across the 40 providers signed up to the FLS fell by £300m in the first quarter of 2013 and has fallen by £1.8bn in total since FLS came into operation. By contrast, peer-to-peer lending is expected to be worth some £500m this year; pension-led funding has already passed the £250m milestone and recent figures show that invoice discounting has risen 16 per cent year-on-year.

Financial commentator and business expert, Justin Urquhart Stewart, co-founder of Seven Investment Management (7IM) commented: “Unfortunately, the banks aren’t working, nor are they going to be working for about the next decade. In reality, they’re probably not there to provide that sort of capital in the first place.”

Adam Tavener continued, “It’s a change of mindset to lending that is required and, possibly, even creating a code of practice to encourage behavioural change based on wider corporate and social responsibility. There is a particular need to focus on outcomes, rather than the current inward-looking culture which automatically rejects applications for funding which don’t meet the very similar criteria applied by all the big players in the SME banking sector.”

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