By Marcus Leach
The Bank of England have confirmed what many of us already knew, that the Funding for Lending Scheme is not working. At least it isn't working as the Government may have hoped.
Launched to encourage banks to lend more to individuals and businesses, in turn boosting the stuttering economy, it seems that the Government failed to, prior to its launch, ensure that it would do what they said it would - that is unless you are in the mortgage sector, and then it has worked perfectly.
For any doubting that it isn't working for businesses you need look no further than Minister for Business and Enterprise, Michael Fallon, who admitted to me last month that the Government and banks needed to fine tune the process if they are to see the desired results the scheme set out to achieve.
"I think it is fair to say we need to go back and look at this [Funding for Lending Scheme], as clearly it is not working as intended at present," Mr Fallon admitted to me at Smith & Williamson’s Entrepreneurial Minds event.
Today's data, which recorded a £2.4 billion drop in the final quarter of last year compared with the previous three months, will only serve to reiterate Mr Fallon's comments; the scheme isn't working and needs changing quickly. Failure to do so will see it become another 'looks good on paper yet fails to do what it says' initiative from the Government, further adding to many businesses view that the Government simply isn't doing enough to support them.
Stewart Baird of small to medium sized enterprise venture funding company, Stone Ventures, is of the opinion that unless businesses have a high level of assets they stand next to no chance of securing the finance they need.
"We speak to small and medium-sized businesses all the time and the caution of lenders remains as excessive as it was during the dark days of 2008 and 2009," Mr Baird said.
"The issue at play is fundamentally the same. Unless those companies applying for funds have a decent level of assets, getting a loan is a big ask.
"There's no doubt that this conservatism of the banks is proving a fundamental drag on the recovery. Without funds, how can companies grow?
"What we're also seeing is a fall in demand for bank loans. Company directors know that the securing a loan on the high street is a long shot at best.
"Instead, they're somehow making do or are turning to alternative sources of finance."
However, as Katja Hall, CBI Chief Policy Director, points out, we mustn't forget that the "scheme is operating against the headwinds of bank deleveraging and muted confidence in the economy, which are reflected in the headline lending figures."
Be that as it may, it will do little to comfort the hundreds, if not thousands, of businesses trying to get finance at present. If the scheme is to have any sort of meaningful future then the message to the Government is simple; make the changes necessary to ensure the scheme works, and make them quickly. Failure to do so could see thew scheme fail before it ever really got started.
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