Small firms remain starved of bank credit despite an increase in lending under the flagship Bank of England funding scheme designed to stimulate the economy.
A total of £1.6 billion was lent by 41 banks and building societies under the Bank’s Funding for Lending Scheme during the three months to the end of June, the first substantial increase in lending since the scheme was set up last August.
But lending to small and medium-sized enterprises continues to fall, shrinking by a net £583 million during the quarter. The scheme offers banks and building societies discounted loans in return for increasing lending to households and businesses.
But while it has helped slash the cost of mortages and other home loans, credit to small firms continues to fall.
Overall net lending by FLS banks since the scheme started remains negative, down £2.3bn on aggregate despite lenders having drawn down a total of £17.6bn.
Yesterday the Bank of England said it expected net lending to continue to rise over the coming months.
“The FLS is continuing to support lending to the UK economy with a range of indicators suggesting that credit conditions are steadily improving for households and firms, and FLS participants collectively expect net lending volumes to pick up over the remainder of this year,” said executive director for markets Paul Fisher.
The scheme was revamped in April in a bid to boost the flow of credit to small businesses, which the bank classes as firms with a turnover of less than £25m.
Yesterday, it said there were signs the price and availability of lending to businesses is improving, pointing to a survey from the Federation of Small Businesses which suggests loan costs for small firms are falling.
“A range of evidence suggests that credit availability has increased and the cost of credit has decreased for larger businesses,” the bank said.
“The picture for the conditions faced by small and medium-sized businesses is more mixed.”
Nationwide Building Society was the biggest participating lender during the quarter, extending a net £2.3bn. Lloyds Banking Group also lent a net £1.3bn, reversing a pattern of shrinking loans seen during the prior three months.
A Lloyds spokesman said its growth came despite the taxpayer-backed bank continuing to run down its portfolio of non-core loans to focus on SMEs and first-time buyers.
Part-nationalised Royal Bank of Scotland shrunk net lending by £2.8bn while lending by Spanish-owned bank Santander fell £1.8bn.
Santander also repaid £900m of the £1bn it has borrowed from the scheme, saying it is now cheaper to borrow on the wholesale money markets than through the scheme.
Barclays lent a net £668m and Virgin Money lent a net £738m.