Funding for Lending is making mortgages cheaper and is starting to cut the cost of business loans. The reason that demand for finance is still sluggish lies in a lack of confidence among firms. The chancellor is right to give the scheme another year, and the changes are incentive-based by saying banks will get more finance next year if they boost lending now. I’m not claiming Funding for Lending is a silver bullet – Co-op pulling out of the Lloyds deal is a salutary reminder of the pressure on bank balance sheets when European economies and banking are flat. But it is already doing good. More house buying has a knock on effect on the High Street and businesses across the country. The key now is to drive up small and medium-sized businesses’s confidence to invest by better promoting the lending schemes open to them. John Cridland CBE is director-general of the Confederation of British Industry.
The extension to Funding for Lending comes with good intentions, but won’t be enough to secure funding for many struggling small businesses. Past figures show that Funding for Lending hasn’t lived up to its promises to boost loans to small and medium-sized businesses – with banks lacking confidence and remaining heavily-dependent on computerised credit scoring – and it’s unlikely to be any different this time round (despite the scheme’s limited extension to non-bank lenders). Micro-businesses are often in the dark over what other credit is available to them and, once rejected by their bank, are forced down the other extreme of payday loans. According to our research, one in six that are turned down have resorted to a payday company to fund their venture. To get the economy moving, Britain desperately needs to return to old-fashioned lending by institutions that understand their customers. James Benamor is founder and chief executive of Amigo Loans.