One year on from Funding for Lending: small business outlook

James Benamor assesses the business finance climate 12 months on from the introduction of the government scheme that aimed to stimulate business lending.

August 1 marked the first anniversary of the opening of the government’s Funding for Lending scheme, but there isn’t much to celebrate. The past year shows little evidence that small businesses have been given the financial boost they desperately need.

The Funding for Lending scheme was originally introduced last year as a government initiative to provide the economy with a much-needed boost and give banks the extra support they needed to start lending again.

The scheme and its subsequent extension in April came with good intentions but it remains to be seen whether it’s had any significant impact on increasing bank lending to SMEs and micro-businesses.

Recent British Bankers’ Association (BBA) figures have shown British banks have actually cut back on their lending to small businesses since the scheme began.

The figures show that lending fell in over 80 per cent of the UK’s 120 postcode areas between 2011 and 2012, and in all nine regions of England, as well as in Scotland and Wales.

The data also shows that overall in 2012, lending to small businesses fell by £4.5 billion compared with 2011.

These figures are disappointing to say the least and it’s plain to see the UK’s small businesses are getting a raw deal from the banks.

Even business secretary Vince Cable, the face of the scheme, admitted in a recent interview that the effects of it have been limited so far and not delivered nearly as much as they had hoped.

Even though the recent stats from the Bank of England show that lending to small businesses has risen by £238 million between May and June, this growth continues to be sluggish and it may just be too late for struggling small businesses. So the question remains – what’s the alternative for SMEs and micro-businesses?

Our research shows many UK micro-businesses are eager to grow and develop but are held back by lack of funding, and this bleak financial landscape doesn’t look set to change.

A quarter (25 per cent) of micro-businesses believe they will need additional funds if their business has any chance of growing, a fifth (21 per cent) don’t have any idea how they will grow in the future, and worryingly a further 15 per cent think growth just isn’t an option for them at the moment.

Even more concerning is the fact that one in six micro-businesses admitted they have been forced to take out a payday loan in order to fund their business venture.

It’s shocking that entrepreneurs and micro businesses that lie at the heart of the UK economy are being denied access to traditional bank credit and are even having to consider payday loans as an option to grow their business.

It’s essential for any business struggling to get credit to be aware that there are alternative lending options available to them to help grow their business – and to ensure that they aren’t being forced down the pay day lending route.

Further reading on business loans

James Benamor

James Benamor

CEO and founder of Richmond Group, which starts, builds and invests in innovative companies in the Fintech, Proptech and Edtech sectors.

Related Topics

Small Business Funding