The effectiveness of a flagship scheme designed to boost the flow of credit to cash-strapped firms remained in doubt yesterday as new figures showed another decline in lending.
Although the Bank of England has tweaked its Funding for Lending Scheme (FLS) to concentrate on small and medium-sized enterprises (SMEs), business leaders said the initiative “continues to disappoint”.
The central bank said net lending to small firms under the scheme fell by £435 million in the three months to June, although this was less than the £719m contraction seen in the first quarter of the year.
John Allan, national chairman of the Federation of Small Businesses, said: “Small firms are increasingly confident across every sector, and in every region.
“But these new FLS figures again show that growth ambitions are not being translated into demand for finance, especially for smaller businesses that have not been able to capitalise on cheaper credit.”
The FLS was launched in 2012, giving banks and building societies access to cheap finance in return for lending to households and businesses, and was later revamped with a skew towards small firms.
The Bank said some of the weakness in lending may reflect a lack of demand among companies, but Hargreaves Lansdown senior analyst Laith Khalaf said “the jury is still out” on the initiative and yesterday’s figures “don’t increase the chances of a positive verdict”.
John Longworth, director-general of the British Chambers of Commerce, added: “Although the decline in lending to SMEs was less than in the previous quarter, FLS continues to disappoint.
“Despite the welcome re-focus towards SME lending, the real test for the scheme has always been whether it is able to get credit flowing to young and fast-growing businesses.”
The figures showed that Lloyds Banking Group grew its net lending to SMEs by £384m in the second quarter, but there was a £360m contraction at fellow bailed-out lender Royal Bank of Scotland. Net lending at Clydesdale Bank fell by £439m.