Small businesses to boost from Funding for Lending Scheme extension

Johnson Reed
2m read

The UK’s small and medium businesses are expected to benefit after the Bank of England’s Funding for Lending Scheme (FLS) has been extended to help aid business in 2014.

The FLS has seen a successful eighteen months since its launch in July 2012, and has reached its target of reducing the cost of bank funding. Credit conditions for households have also seen an improvement, although conditions for businesses have seen a more modest improvement.

Therefore it was with a collective cheer from the UK’s businesses that the FLS extension will be extended in 2014, with emphasis on the small to medium sized (SME) businesses.

Although seen as good news in general, there are some that believe the impact on the moving industry will be a negative one. Sources claim that every moving business will be affected by a reduction in the availability of finance to purchasers, although those who are investing in their business growth will benefit.

The Bank of England’s recent re-focus comes on the heels of an apparent inprovement of the housing market, after house price inflation appears to be gaining momentum. The FLS changes, however, do not impact the Government’s Help-to-Buy scheme, which remains in place to help low-deposit borrowers get access to mortgages.

Banks will be encouraged to continue lending to SMEs by the FLS scheme allowing them to draw £5 for every £1 of net lending to SMEs in 2014. This, coupled with the lowest fee for drawings from the FLS extension from the previous fee scale, has produced confidence in the continued investment in the UK’s small businesses.

Chancellor George Osborne commented on the changes:

Over the past year the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households. The changes refocus the FLS where it is most needed – to underpin the supply of credit to small business over the next year – without providing further broad support to household lending that is no longer needed.

The Funding for Lending Scheme proved to be a successful tool in supporting the recovery. Now that the housing market is starting to pick up, it is right that we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That’s why we’re reforming the banks, introducing the employment allowance and now focusing the Funding for Lending Scheme to support them.