Could The Latest Lending Scheme For SMEs Be As Ineffective As The Rest?

The government has recently launched yet another scheme to kick-start the economy. £80 billion has been pumped in by the Bank of England in order to provide low-cost borrowing for banks with little guarantee that this funding will reach those businesses that need it the most.

Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers Irwin Insolvency said, “The Funding for Lending scheme has now superseded the National Loan Guarantee scheme. However, there is very little evidence that any of these schemes have actually worked as small businesses remain bereft of funding. Indeed, net bank lending continues to fall every month. Surely now is the time for the government to concentrate its efforts on alternative sources of funding for high-risk businesses that continue to be left out in the cold.”

Larger companies may well be enjoying low borrowing costs thanks to low bank rates but, for small businesses, the outlook is decidedly murky as the decline in SME lending becomes an increasing but significant challenge. The combination of weak economic growth and tough funding conditions is fast becoming the perfect storm.

“The fact is that in the quest to strengthen banks’ balance sheets new capital requirements have resulted in reduced liquidity for small businesses”, added Mr. Irwin.

In the interim, a number of the major high street banks have agreed to test a formal referral service to help those businesses that fail basic lending criteria. This will be done through small regional lenders better known as community development finance institutions in an attempt to ease the funding shortage.