The government and Bank of England have recently announced an expansion to the Funding for Lending scheme. The scheme urges banks to support the UK economy by giving loans to small UK businesses in order to help them grow and develop. However, RBS boss, Stephen Hester, says that UK businesses are not asking for loans – leaving the bank with around £20billion that has been set aside for lending. There has been a lot of controversy about this lack of lending, with the fault being placed on both the bankers and the businesses.

About the Funding for Lending Scheme

The Bank of England and HM Treasury launched FLS to give banks and building societies an incentive to lend to UK businesses and help boost the economy. To do this the government provides funding to banks based on their lending performance. This scheme was extended in April 2013 and will now run until 2015, giving banks greater incentives to lend. The FLS provides cheap loans to banks on the condition that they are given to customers, new incentives mean that for every £1 lent to an SME, the bank can borrow £5 from the FLS. This increase in Funding for Lending gives SMEs a huge amount of potential funding to help them start, develop and expand their businesses.

RBS have officially stated that they are keen to lend money they have set aside for business borrowing, however they are not the only bank with this kind of financial scheme in place. Most UK banks have a sum that has been specifically allocated for lending to SMEs, offering different rates and deals to different businesses.

Bankers and businesses

Last week Lawrence Tomlinson, entrepreneur in residence at the Department for Business, Innovation and Skills (BIS), made a statement to the Financial Times suggesting that the banks are inept when it comes to lending. Tomlinson argued that most entrepreneurs and businesses are scared to talk to banks because they have been put in a tight spot financially by them. The British Bankers’ Association responded to Tomlinson’s statement by saying that businesses have over £15billion of borrowing available to them that is not currently being requested.

Stephen Hester claims that RBS is desperate to lend, but can’t because business owners are unwilling to borrow. In a comment Hester made to the Sunday Times, he stated that banks “can’t force companies to borrow” and continued to say that business confidence is the main barrier that is faced when lending.

Lending on the increase

Despite these opposing views, figures published by BIS show that bank lending has seen an increase through the Enterprise Finance Guarantee (EFG). The EFG was created in order to increase the amount of finance that small businesses can access, a scheme that seems to be working according to the BIS. Figures show that the fourth quarter of 2012/13 lending was £91.7m, this is the highest amount seen since September 2011.  This figure is set to continue rising, meaning that now is a great time to apply for a business loan.