Latest figures for the Bank of England’s Funding for Lending scheme (FLS) show that net lending to SMEs has dropped by £435m in the three months to June.
However, the contraction in lending to SMEs was not as great as the £723m fall of the previous quarter (January-March 2014).
The Bank’s figures also show that net lending to all businesses under the FLS shrank by £3.9bn.
Between April and June, Lloyds increased its net lending to smaller firms by £384m. Santander raised its net lending to SME by £99m, Aldermore increased its net figure by £118m and Investec by £136m. However, these gains were offset by declines at Royal Bank of Scotland (£360m), Nationwide (£501m) and Clydesdale (£439m).
Nevertheless, many believe as Barclays and HSBC are no longer participating in the scheme, the Bank of England data fails to provide an accurate insight into the major banks’ lending to small businesses.
The government launched the Funding for Lending scheme in July 2012 to enable banks to borrow money cheaply from the Bank of England on the condition they increased their lending to British companies.
However, many in the industry believe the scheme has not been successful.
Iain Moffatt, UK head of regions for KPMG, commented: “It’s clearly disappointing that lending to SMEs has continued to contract in Q2, particularly as these figures coincide with a separate report out today which suggests that success rates on applications for loans from small businesses are at a three-year low.
“Both of these trends somewhat contradict the enormous growth in business confidence that we have seen amongst the engine room of the UK. Whilst we are in a lot of cases seeing smaller companies able to finance their growth plans via cash that they have retained within their business over the last couple of years, one wonders how long this can be sustained. Increased bank lending will likely have an important part to play if we are to ensure the economy continues on its path of steady growth.”
Rather than use the scheme to finances business, many banks used the cash to lend as mortgages. Last November, BoE governor Mark Carney, refocused the scheme to encourage corporate lending rather than mortgage loans: for every £1 lent to small businesses, banks could draw down a further £5 at a very low interest rate.
Banks can continue to borrow using the scheme until January 2015.