Lending to small businesses under FLS scheme falls

Cash The FLS is meant to help banks release loans cheaply, mainly to SMEs

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Lending to small and medium-sized firms (SMEs) via the government's Funding for Lending Sscheme (FLS) fell again in the second quarter of the year.

The Bank of England said that net lending, which takes account of repaid loans, to SMEs dropped by £435m.

The Bank's figures also show that net lending to all businesses under the FLS contracted by £3.9bn.

Business groups have expressed disappointment with the figures, claiming more needs to be done.

However, the contraction in lending to SMEs was not as great as the £723m fall of the previous quarter.

The FLS is meant to help banks release loans cheaply, mainly to SMEs, who had reported difficulty in securing funds.

"Funding for Lending continues to disappoint. The real test for the scheme has always been whether it is able to get credit flowing to young and fast-growing businesses," said John Longworth, director general of the British Chambers of Commerce.

"Unfortunately many of these firms remain frozen out when it comes to accessing the finance they need to fulfil their potential."

'Jury is out'

The system of offering cheap funding for banks was launched in July 2012 and extended in April 2013. Banks can continue to borrow until January 2015, however now the scheme is only to encourage lending to businesses rather than mortgage lending.

"The jury is still out on the Funding for Lending scheme and today's figures don't increase the chances of a positive verdict," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"The Bank of England will maintain that the scheme will take some time to have full effect, and we don't know what business lending would be shrinking by if the scheme were not in place."

However, separate figures from the Bank show that net lending to businesses by all banks and building societies, including those not participating in the FLS, was up in the second quarter of the year.

Overall bank lending to non-financial businesses rose slightly - the first increase since 2009.

The Federation of Small Businesses has reported that loan application success rates by small businesses also rose in the second quarter of the year.

A spokesman for the Treasury said: "The first phase of the Funding for Lending Scheme [has been] improving credit conditions and increasing competition in lending.

"Today's data shows that more still needs to be done to support business lending , which is why the Chancellor and Governor of the Bank of England focussed the second stage of the scheme exclusively on business lending."

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