Business leaders have given a cautious welcome to the governments’ plan to extend the Funding for Lending scheme.
The scheme is designed to encourage banks to lend by making cheap loans available, on the condition that they will pass on the benefits to businesses and homebuyers. Bank of England figures suggest banks took nearly £14 billion from the Funding for Lending scheme between August and December last year but lending by participating banks was actually lower in that period than in the six months before the scheme was introduced in July 2012.
The Bank of England announced on 24 April that the scheme would be extended from January 2014 to January 2015. To encourage banks to speed up lending, in 2014 banks will be able to access £10 of cheap money for every £1 they lend to small and medium-sized enterprises (SMEs) in 2013. Every £1 of lending to SMEs in 2014 will allow banks to borrow £5 in 2015.
Funding for Lending will also be expanded to include lending by banking groups involving leasing and invoice discounting companies, which the Treasury said could be “important sources” of finance to some SMEs.
The CBI’s Matthew Fell commented: "Funding for Lending is already making a difference to the housing market and there are signs that it is starting to lower the cost of finance for business. The additional incentives for banks should accelerate activity in the small business financing market.
But he added: “Funding for Lending is only one piece of the jigsaw. Boosting firms’ confidence by raising awareness of the various funding schemes available is critical."