By Marcus Leach
There was further bad news for businesses today (Monday) as figures released showed that the number of loans being offered by banks has continued to fall, in spite of the Funding for Lending Scheme (FLS).
It was hoped that the scheme, introduced last August, would encourage banks to lend money to both individuals and businesses, in turn giving the economy a much needed boost.
However, the Bank of England has said that net lending fell by a staggering £2.4 billion in the final quarter of last year compared with the previous three months.
"Some banks are reducing parts of their lending activities, consistent with the continued adjustment of their business models in the wake of the financial crisis, or responding to state aid conditions," said the Bank of England.
It said the scheme had been slow to take off because banks had to scrutinise and approve loan applications.
"These 'warts and all' figures make a mockery of most of the big banks' claims about being willing to lend," Christopher Shaw, CEO of the alternative finance provider Platform Black, commented.
"Total net lending by banks and building societies taking part in the scheme - which includes all major British lenders apart from HSBC - is now down by £1.5bn since June 30.
"And behind these figures there is a growing split in the sorts of loans being offered.
"The FLS's aim is to boost lending to both households and businesses.
"But for the banks it's clearly still a case of all borrowers being equal, but some being more equal than others. Somehow the banks' lending criteria have morphed into "mortgage lending good, business lending bad".
"So while mortgage lending is improving, on the business front line things are going from bad to worse.
"Despite their greater access to funds, the high street banks' risk aversion has become endemic, and most won't consider lending to a business without significant assets and security.
"In many cases, even when companies are offered a loan, the terms can be so prohibitive that they are just not practical.
"This is inhibiting business growth and limiting the wider economy's ability to recover.
"The Funding for Lending scheme is a fine idea in principle - but for now it is little more than that.
"The banks' continued unwillingness - or inability - to lend to businesses has led ever more companies to seek funds from alternative finance providers. The banks still have a vital role to play oiling the wheels of British business, but their monopoly on lending is gone for good."
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