£7.8bn “remorseless decline” in small business lending

Entrepreneur responds to Vince Cable’s call for Funding for Lending turnaround and banks' lending performance over the last 18 months

Business secretary Vince Cable has called for changes that ensure the Bank of England-led Funding for Lending Scheme (FLS) better targets small, cash-starved firms.

With lending to small and medium-sized enterprises falling by £7.8bn in the last 18 months, Cable said that he sees “no sign of a turning point” in the “remorseless decline in lending” and questioned whether lending levels to small businesses will change without action.

Consequently, the business secretary has demanded more transparency from the banks, insisting that they share details of their gross and net lending to small and medium-sized enterprises (SMEs) with both government and parliament.

Speaking to Bloomberg, Cable acknowledged that FLS, which was designed to offer banks cheap loans from the Bank of England to incentivise them to lend, is a “useful scheme”. However, he highlighted that more needs to be done to ensure that the funding is going to small companies and not just larger companies and the mortgage market.

He said: “In the short term, I’m interested to explore whether the Bank [of England]’s criteria are wide enough, and I’m asking them for their thoughts on how we ensure that FLS reaches businesses that need it most, because we must end this credit bottleneck as a matter of urgency.”

“The alternatives – flooding the markets with the sort of cheap funding that creates asset bubbles, or else starving SMEs altogether – are not acceptable, sustainable or viable,” continued Cable. “I long for the day when a small business owner doesn’t cite access to finance as the biggest problem out there.”

Serial entrepreneur Chris Ingram highlights that the loose definition of the term SMEs enables banks to favour larger firms.

He said: “There’s an enormous range within that definition. I had a company with 2,600 people and £1.5bn turnover – that was still an SME. Now I help SMEs with 26 people. Who do you think gets the loans?

“Some SMEs have nice, tangible assets, like buildings. Most don’t, particularly the young, thrusting ones. Who do you think gets the loans? And anyway, the emphasis need to be on the GROWING SMEs if we want to influence employment and the UK’s wealth.

“Banks have been able to hide behind the Bank of England’s demands for a higher proportion of reserves post crash: ‘How can we save it AND give it out as loans at the same time?!’ I’m still waiting for the BoE to give a satisfactory riposte to that.

“The unspoken truth is that most of the big banks are sitting on huge loans that have gone bad, left over from the pre-crash lending binge. They daren’t call them in, so they’re really grateful to dear old BoE giving them this nice cheap money to prop up their reserves.”

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