Business loans drop despite cheap funding

Tim Wallace
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BANK lending to British firms fell again in the three months to May, the Bank of England revealed yesterday.

Net lending to all sizes of business dipped, bringing the total stock of loans down by £4.5bn in the quarter.

That comes despite the Bank’s Funding for Lending Scheme (FLS), which is designed to offer cheap funds to banks as long as they lend more to firms and households.

In recent months the FLS has been skewed to give banks an extra incentive to lend to small businesses.

Small and medium-sized enterprises (SMEs) borrowed £10.2bn in the first quarter, according to more detailed sectoral data, but paid back £10.4bn – a net fall of £0.2bn.

“While the enhancement of Funding for Lending to encourage participating institutions to focus on SME lending is welcome, this scheme is necessarily short-term and we need to be doing far more to increase access to finance,” said economist Lee Hopley from manufacturing industry body EEF.

“In the long run, only a more competitive, dynamic, and diverse funding landscape will sustainably improve credit conditions for SMEs. This has to start with increasing competition for lending.”