Net lending to small and medium-sized businesses through the Funding for Lending scheme dropped in the second quarter of 2014.
According to Bank of England data, lending to SMEs fell by £400m during the quarter. Net lending to large companies was down by £3.5bn with net lending to all businesses, including eligible non-bank credit providers, down by £3.9bn.
The Bank of England attributes the drop in net lending to SMEs to a drop in demand.
“Some of the weakness in bank lending to smaller businesses, which has persisted despite the fall in bank funding costs, may reflect weaker demand. The Federation of Small Businesses’ Voice of Small Business Index reported that loan application success rates continued to increase in 2014 Q2, and that the rates offered to successful businesses have fallen back over the past year.”
Forum of Private Business chief executive Phil Orford expressed disappointment over the figures. “These figures would surely be worse still if Funding for Lending was not in place, and it is true there is a weakness in demand but it remains disappointing to see less money being lent in this crucial part of the economy,” he said. “Without more lending to small businesses, their growth and the country’s growth will remain slow.”
The Funding for Lending scheme was launched in July 2012 and was designed to boost lending and stimulate the economy by offering a banks and building societies a lower interest rate for borrowing from the Bank of England, allowing them to grow lending to businesses and individuals by lowering interests rates and increasing access to credit. The scheme is running until January 2015.