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Slow results from the Funding for Lending scheme

New figures released by The Bank of England indicate a slow, even disappointing, start for the much-publicised Funding for Lending scheme (FLS). The Government program was intended to solve Britain’s lending crisis by offering cheap loans to homes and businesses, but it isn’t proving to be as successful as was initially expected.

The scheme was launched in the summer but, in the three months to the end of September, only six banks and building societies actually took advantage of it despite 35 signing up. Just £500million of lending was released and in many cases the amount of lending offered actually plummeted, and it’s also been revealed that those six lenders who actually got involved managed to suck around £1.4billion out of the economy thanks to negative net lending.

This paints a worrying picture of the perceived effectiveness of the new scheme. It was designed to reduce borrowing costs for banks and other lenders who should, theoretically, pass those lower costs to their customers to make borrowing cheaper and easier to access, but these figures show that this simply isn’t happening. Instead, lenders seem to be lowering mortgage rates whilst making terms for small and medium-sized businesses even tighter—independent figures show that small businesses looking for first time finances are actually more likely to be refused—something that certainly wasn’t intended.

This all means that loans and other forms of credit aren’t easier to come by—it simply makes credit cheaper to those who have already been successful in applying for it. This is in marked contrast to the whole idea of the program, to boost lending to small businesses and get the economy moving, and means small businesses perhaps shouldn’t be looking to this scheme as the end to their financial problems. Why not consider an alternative? Invoice factoring could be a great way to improve cash flow and give you the finance you need, something that the FLS so far hasn’t managed to achieve.

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