Funding for lending still a damp squib

Latest Bank of England figures show overall business lending dropped by £2.7bn in Q1 2014

Despite a big government push to chivvy along business lending, the level of lending to small and medium-sized firms fell by £700m.

According to the figures released by the Bank of England, Lloyds Banking Group was responsible for the majority of drawdowns in the first quarter of the year, accounting for £2bn of the total £2.012bn lent.

The Funding for Lending scheme was launched in July 2012, with the goal of encouraging more lending by allowing banks to borrow money more cheaply from the Bank of England. The government wanted the emphasis switched from mortgage lending to business-only lending.

Phil Orford, chief executive of the Forum of Private Business, said the figures were disappointing. “At -£0.7bn, net lending to SMBs is down on last year. The figures could be worse were it not for the extension of FLS, which increased the incentive for lending to small businesses in particular. The figures replicate the findings of the most recent SME Finance Monitor, which continues to show a subdued appetite for lending.

“At a sectoral level some of the decline in lending is down to reduced appetite to lend to the real estate sector so for the rest of the economy the picture is slightly brighter. At a time when the economy is picking up there is no doubt the figures remain slightly disappointing.”

John Allan, national chairman of the Federation of Small Businesses said the news came as no surprise.

"There needs to be a greater focus by Government and financial providers on making it easier for small businesses to access finance," he said.

“We have been calling for the banks to open up lending to small firms and for the Government to break up the financial market to generate more competition among high street banks and alternative lenders. However, today’s figures show that, in spite of credit being cheaper now, small firms are still coming up against invisible barriers to accessing finance.

"Some smaller firms, especially at the lower end of the market, will be using their own resources to fund their businesses and they’re seeking alternative forms of funding, for example peer to peer and crowd-funding."