Analysts reject beefed up state funds scheme

Tim Wallace
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SMALL businesses need help getting equity finance from the Budget next week, rather than having extra debt pushed at them through the Funding for Lending Scheme (FLS), industry specialists argued yesterday.

The government is believed to be disappointed at the failure of the scheme to increase lending, and so may add in extra incentives to lend to SMEs in next week’s budget.

Last night Michael Fallon, the minister for business and enterprise, said he and Vince Cable would be meeting senior Bank of England official Paul Tucker to ensure small firms benefit from the FLS.

But industry figures show over 80 per cent of SME loan applications are approved, which analysts argue indicates there is simply little demand from quality firms for credit.

“If you think about the build up to the crisis, there was too much bad lending,” said PwC’s Kevin Burrowes, explaining why banks are reluctant to cut lending standards. “But small firms have an equity problem, with markets for investors less developed in the UK than in the US or Germany.”

Vince Cable recently hinted he could back plans to cut back capital gains tax and allow ISAs to include shares of small firms listed on the alternative investment market. And business groups like the CBI backed the London Stock Exchange’s proposals to reduce barriers to investing in SMEs.

Meanwhile smaller lenders complained they have still not been given access to FLS resources as they remain in negotiations with the Bank of England over their collateral.

A total of 39 lenders have signed up but only 13 have taken funds.

Part of the reason is the Bank has to check they have suitable collateral.

Those lenders still waiting for approval argue that allowing them access to the scheme would increase lending quickly. Making the FLS, as it stands, work fully should be given priority over more radical plans to shake up the scheme, they say.

“We applied to join the FLS in September, but as we are subject to a more intensive approval process, it has delayed our ability to access funds and increase lending. We are hopeful it can happen in the next month or two,” Secure Trust’s Paul Lynam told City A.M.