August 03, 2012
The Funding for Lending Scheme (FLS) is now open for business and will be in place for the next eighteen months. The scheme is designed to encourage banks and building societies to increase lending to UK businesses and households. Those that lend more can borrow more, and can do so at lower cost compared to banks that lend less.
The new scheme sounds a death knell for the National Loan Guarantee Scheme (NLGS), although it may be a slow demise.
The NLGS has provided reduced rate loans for smaller businesses. From now on, banks are likely to favour Funding for Lending over the National Loan Guarantee Scheme although the NLGS will remain available to banks if they wish to use it in the future, or if market conditions change.
Chancellor George Osborne, said: “The more generous FLS has officially opened for business and will, in time, effectively take over from the NLGS, delivering credit easing to the whole economy.”
Reactions to the launch of Funding for Lending from the small business community have been broadly positive although there are still deep concerns about funding for SMEs.
John Longworth, director general of the British Chambers of Commerce (BCC), said: “We’re pleased to see a more imaginative approach to providing cheaper lending to businesses and it is a welcome step forward. However, the real test for the scheme will be whether the funding reaches fast-growing or new enterprises, particularly those that have had difficulties accessing the finance needed to start-up, develop and expand. While the scheme will provide cheaper lending, it remains to be seen whether it will extend beyond those companies that would have qualified for loans in the first place.”
John Walker, national chairman of the Federation of Small Businesses (FSB), said: “The main objective for any government-backed scheme should be to ensure that the finance actually gets through to small firms. Four-in-10 small firms were refused in the second quarter and this needs to change if the economy is to grow.”
Gordon Skaljak, director at credit management specialist, Graydon UK, said: “There is no guarantee that the new scheme will work any better. Businesses need stability, confidence, investment, competitiveness and demand in the market. For SMEs, first they will need access to finance at an affordable interest rate, on the other hand they will need to show their own creditworthiness to obtain that finance.”