Overall lending levels to small and medium sized enterprises (SMEs) via the governmentís flagship Funding for Lending scheme have dropped in 2014, despite the scheme being refocused away from propping up lending in the property market to primarily bolster business lending, the Bank of England has identified.
Funding for Lending was created in order to ensure that banks provided cheaper loans to both individuals and businesses who had previously reported that they were struggling to access finance from mainstream lenders.
Under the scheme, banks are given access to funding at a low rate, which they are then expected to redistribute at similarly cheap borrowing costs in order to enhance the level of funds available to small and medium sized businesses in the country.
In the past many SME directors have called for policymakers to make it easier for them to access finance citing that they require the credit to pursue their expansion aims, raise their exports levels, employ more people and raise the wages of current members of staff.
Compellingly, the Bank of England has revealed that net lending dropped by a staggering £2.7 billion during the first 3 months of 2014, but only after repaid loans were factored in which suggests that businesses are beginning to adopt the mentality of repaying debt rather than expanding it in order to further their aims.
This view has been supported by a key independent SME Monitor who highlighted: ìFewer than one in 10 businesses said they viewed access to finance as a major barrier to growth and successî.
And the Forum of Private Business (FPB) has argued that it is a lack of urgency on the part of businesses which has resulted in the net lending figures falling in recent times.
Phil Orford, the FPB’s chief executive, said: “The figures replicate the findings of the most recent SME Finance Monitor, which continues to show a subdued appetite for lending.
“Banks are keen to stress they have money to lend and the Forum of Private Business continues to urge businesses that money is there to borrow at present, either through the main or challenger banks, or through alternative sources, some of which are highlighted on the excellent Alternative Business Finance website.”
However, whilst some have theorised that the recent fall in lending to businesses is down to a newly adopted approach by company directors to minimise risk by lowering debt, others such as the British Chambers of Commerce (BCC) have argued that numerous companies have struggled to access finance because banks will simply not lend money to them.
John Longworth, the director general of the BCC said: “Although more established firms have little difficulty in accessing the finance they need, the litmus test for the Funding for Lending scheme has always been whether young and fast-growing businesses are able to get the finance they need to expand and drive the recovery, and unfortunately many of these firms remain frozen out of the market.”
The primary banking body, the BBA, released its own data which indicated that SMEs repaid a monumental £5.2 billion of existing loans during the first quarter of this year, which is consistent with the equivalent figure over the same period in 2013.
In certain cases the BBA also highlighted that the level of cash being held by companies have actually risen in recent times.
As of the end of March, small and medium enterprises were holding £138.1 billion collectively in cash, representing a 9% rise from 2013.
The BBA’s chief economist Richard Woolhouse identified that new borrowing in the industry was £6.8 billion during the first quarter of this year, suggesting that there is little substance behind allegations that SMEs are struggling to access finance from banks, with other independent data reinforcing this notion by disclosing that less than one in ten businesses believe that access to finance is a real obstacle to growth and success.