The Bank of England and HM Treasury have announced an extension to the Funding for Lending Scheme (FLS), with a wider scope and incentives for greater SME lending.
The scheme will be expanded to include lending by banking groups involving leasing and factoring corporations, with banks required to report net lending by non-bank credit providers. This means banks can now provide money to smaller independent leasing companies who can then pass on the funding discount to SMEs.
Go deeper with GlobalData
It will also incentivise lending to smaller businesses by allowing banks to draw £10 from the scheme in 2014 for every £1 lent to SMEs this year. At the same time net lending to other sectors in 2013 will be worth the same amount in 2014.
The scheme has also been extended into January 2015, and any money lent to SMEs in 2014 will be worth £5 of a bank’s initial borrowing allowance in 2015.
Stephen Sklaroff, director general of the Finance and Leasing Association (FLA), said: "The new incentives for SME lending, the inclusion of non-bank subsidiaries of participating banks, and allowing participants to lend to non-bank credit providers, ought in principle to help the leasing markets"
He added: "While it is clear a lot of work will be needed to implement these changes effectively, the extended scheme ought to help UK small businesses."
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataPhilip White, chief executive of independent finance provider Syscap, said: the company was pleased with the announcement, which addressed the flaw in the FLS whereby "there was no specific incentive" for banks to lend to SMEs "rather than to big companies."
He said the original FLS didn’t address the "vitally important flow of funds from banks through independent leasing companies and on to SMEs," with lessors having infrastructure and SMEs that banks had lost.
Mervyn King, Governor of the Bank of England, said: "The FLS has contributed to a sharp fall in bank funding costs and an improvement in credit conditions since the middle of last year. The changes announced today build on that success by broadening the scope of the scheme and ensuring that it will continue to support the supply of credit, especially to small companies, into 2015."
The Bank said the scheme’s fee structure and operation remain the same, with no upper limits or targets for borrowing. That is to be determined by banks according to their alternative funding costs, which the Bank said had "fallen sharply" since the start of FLS.
White added that the FLS could go further, and "take the natural next step which is to allow leasing companies that are not owned by banks to access "Funding for Lending" directly."
