Bank business lending only expanding slowly

Funding for Lending scheme figures out today remain "disappointing", commentators said

Business groups say the latest figures from the government's Funding for Lending (FLS) scheme suggest that smaller businesses may still need more help to get credit.

Phil Orford, chief executive officer of the Forum of Private Business (FPB), said the latest FLS figures, while showing some positives, are not helping as many businesses as was hoped.

"Last week, statistics showed small businesses were still reluctant to borrow, despite better conditions and credit available. Today that is shown in the disappointing net lending figures to small businesses," Orford said.

The lending scheme was altered in November last year with a view to offering more support to businesses. Excluding lending from RBS, net lending is up by "around £1bn" to £10.3bn -- but that's down to expansion in the housing market, he said.

Matthew Fell, director for competitive markets at the CBI, said lending to businesses had remained "subdued" despite the changes made.

"To ensure that business appetite for investment is supported, we're calling on the Chancellor to use his upcoming Budget to continue the Annual Investment Allowance at its current higher rate," Fell said.

The Bank of England (BoE) and the Treasury released their figures for the quarter ending 31 January 2014 for the FLS today, including initial allowance data for the scheme extension. Net lending reached £5.8bn in the quarter, they said.

"Thirty-one participants [lenders] made net drawdowns of £18.8bn. Within this, participants repaid a little over £1bn of outstanding drawings. That took outstanding aggregate drawings in the first part of the scheme to £41.9bn," according to a BoE statement.

"Credit conditions for SMEs [turning over less than £25m] have also improved, but to a lesser extent than for households, so the FLS will continue to support lending to businesses in 2014."

Without the FLS, net lending by banks had been expected to decline over the 18 months from June 2012. However, the scheme coupled with "significant improvements" in household and corporate credit conditions had boosted lending overall, it claimed.

According to a Treasury press release announcing the data, the results show "the government's long-term economic plan is working".

"The successful first phase of the FLS has played a crucial role in underpinning the recovery and increasing competition in the banking sector," it said.

Things would continue to improve, it claimed.

"The Chancellor and Governor of the Bank of England have focused the next stage of the scheme on business lending with particular incentives for lending to SMEs. The Budget next month will do more."

FPB's Orford conceded that lending was also growing from "challenger" banks, suggesting that switching banks might be easier -- opening up another angle that businesses seeking finance could try.

"We will continue to monitor the incentives in the scheme to support small businesses, and given the better trading conditions in 2014 we hope to see substantially more positive figures in the next release of data."

CBI's Fell agreed: "The increase in confidence among SMBs should soon translate into greater demand for finance, and it's important this is met by the FLS."