Despite ongoing government schemes, the cost of bank lending for small businesses is continuing to rise. While there are many forms of alternative finance for SMEs, such as invoice finance, traditionally loans of overdrafts have been the first port of call. Funding for Lending was launched to try and make these more available to small businesses – however, the news is not good.
Interest rates on loans for small businesses have risen over the last three months, despite schemes such as Funding for Lending, the government’s latest effort to try and get the banks lending. Interest rates on new bank loans under £1million rose from 3.76% in Q2 to 3.85% in Q3, according to research by Syscap. Funding for Lending was launched on August 1st, so these figures showed that there really wasn’t much impact on lending rates for small businesses.
However, large businesses look like they have benefited where their smaller rivals have lost out. Average interest rates on loans over £20 million have fallen from 2.48% to 2.34% over the same period. This shows that while Funding for Lending might be helping big business, it is not in fact having the desired impact on SMEs. Unfortunately, it is these smaller businesses that are often most in need of help. Getting a commercially viable lending rate is essential for businesses looking to invest in growth, and as SMEs are the lifeblood of any economy, it is a priority to achieve this.
Government schemes such as the Enterprise Finance Guarantee and National Loan Guarantee Scheme have already failed to make small business lending viable again, so it’s important that Funding for Lending doesn’t go to waste as well. If you’re looking for funding, then it could be worth exploring alternative options such as asset based lending in order to make sure you’re getting the most affordable financing possible.