By Daniel Hunter
The Government’s National Loan Guarantee Scheme is being wound down having had no perceptible impact on small business lending, says Syscap, a leading independent finance provider.
The NLGS, part of the Government’s credit easing programme, was originally planned to underwrite up to £20 billion in lending with the aim of lowering the interest rate of small business loans made under the scheme by 1%.
However, the Government has confirmed that the scheme is to be wound down after only lending around £2.5 billion to businesses.
Syscap says that interest rates on smaller business loans remained unchanged by the NLGS. The average interest rate on loans under £1 million were 3.8% in the month the scheme was launched (March 2012) and are still 3.8% as the scheme is being shut (June 2012 — most recent data).
The average interest rate on bank loans under £1million was actually lower a year ago at 3.61%.
“The NLGS is the latest in the series of failed initiatives to get more conventional bank lending to small businesses,” Philip White, Chief Executive of Syscap, said.
“Perhaps the lesson the Government should draw is that you can’t fix conventional bank lending overnight. Instead much more help should be given to areas of the finance market that are increasing funding for businesses — which are working properly.
“Asset finance is one area, in particular, where funding for businesses is growing but where the Government has so far given only token support.”
Funding for businesses from asset finance has increased by 12% over the last year to £20.5 billion (source: FLA, excludes high value eg aircraft and shipping) — meanwhile bank lending to businesses is still falling at 3% per year (source: Bank of England).
Syscap says that the NLGS was the third in a succession of major Government initiatives aimed at increasing lending to small businesses (Project Merlin and the Enterprise Finance Guarantee Scheme) to have run aground.
“Both Project Merlin and the Enterprise Finance Guarantee scheme fell short of expectations because they focused on conventional bank lending,” added White.
“If the Government shifted its support to the leasing sector — promising to underwrite more asset finance deals — then I am certain that much more asset finance would be available to businesses and at cheaper rates.”
Hopes now rest on the Bank of England £80 billion ‘funding for lending’ scheme, intended to stimulate bank lending to businesses. Uncertainty remains over whether this scheme will get new funding to SMEs or just to larger businesses.
“Banks are happy to lend to large businesses — there is no problem there. The problem lies with lending to small businesses and the Funding for Lending scheme offers no targets for increased lending to SMEs,” White said.
“At the moment the evidence is that asset finance such as leasing, is a far better source of funds for businesses.”
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