The Funding for Lending scheme aimed to encourage banks to lend James Benamor assesses the effectiveness of the government's measures to address the business lending gap this year.
2013 has been a turbulent year for SMEs and micro-businesses around the UK with access to traditional bank funding remaining inaccessible for many entrepreneurs and small businesses. In fact the Bank of England’s latest Trends in Lending report, released in October, shows bank lending has continued to fall, with SMEs and micro-businesses being hit the hardest. So as the year draws to a close the question has to be asked: where do the UK’s small businesses stand? Are they in a better financial position than they were this time last year or has nothing really changed at all?
The introduction of various initiatives shows the government is taking steps to address the business lending gap, including the Funding for Lending scheme which was launched in July 2012 and subsequently extended in April this year, aimed at providing incentives to encourage banks to lend to smaller businesses. However, this has been the subject of some criticism, partly due to over-cautious banks not fulfilling their promises to back SMEs and micro-businesses in need of financial support, as well as an apparent lack of available funds.
The British Business Bank, another government initiative, has also been a sore point for many small businesses this year. Vince Cable’s brainchild is aimed at providing SMEs and microbusinesses with access to much needed funding, yet it has been hit with continual delays since its announcement at the end of last year. That said, it looks like the initiative might finally be swinging into action following its recent announcement of a £45 million funding package for small businesses, the first funding allocation from its investment programme.
When all is said and done, there remains a great deal more the government needs to do to encourage small business growth in 2014. In fact our own research highlights that growth is a pipe dream for a fifth of micro-businesses, who have struggled to keep afloat in 2013, let alone grow their businesses. SMEs are at the heart of growth of the UK economy so we cannot afford to wait any longer. Further action needs to be taken to help bridge the lending gap for these small businesses that underpin the UK economy.
What 2013 has really shown is that SMEs and micro-businesses have started to acknowledge other affordable lending options out there. Recent data from the National Association of Commercial Finance Brokers shows non-bank lending to small businesses is at its highest in five years and has increased by 17 per cent annually, as more start-ups and entrepreneurial businesses turn to alternative sources of credit including peer to peer lenders and guarantor lenders.
It’s encouraging to see SMEs and micro-businesses turning to alternative funding options, however awareness of these alternatives is still low, with over three quarters (79 per cent) of SMEs still not aware of the lending options available to them.
How start-ups can be helped by established businesses – in finance and beyond
See also: Sources of funding to open a restaurant
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