Member Article

Bank of England usher in Funding for Lending

The Bank of England’s Funding for Lending initiative begins today, and intends to incentivise banks and building societies to boost their lending to UK businesses and households.

Launched in a bid to get the economy motoring, the scheme is designed to reduce funding costs for banks and building societies, so they can make loans cheaper and more easily available.

Banks will be able to exchange collateral, in the form of loans and other assets, for Treasury Bills, in what is known as a ‘collateral swap.’

When the loans from the Bank of England mature after up to four years, the collateral will be swapped back again.

John Cridland, CBI Director-General, said: “Rising borrowing costs have held back the growth ambition of many small and medium-sized firms. This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more.

“The Funding for Lending Scheme is likely to naturally replace the National Loan Guarantee Scheme overtime because it is a bigger scheme that is open to a broader range of firms.”

The scheme is set to supersede the £20bn National Loan Guarantee Scheme, which was launched in March.

Shadow Treasury Minister, Chris Leslie, said: “This scheme was George Osborne’s flagship announcement at last year’s Conservative Party Conference so if he now u-turns on this it would be yet another blow to his dwindling credibility.

“If the National Loan Guarantee Scheme (NLGS) was always supposed to be replaced by the new Funding for Lending scheme then why, two weeks after that new scheme was announced, did George Osborne say that the NLGS would be extended?

“Despite promises from Ministers, net lending to businesses has fallen in every month of this government. And there are serious questions about whether the new Funding for Lending scheme will really see lending to businesses become cheaper and easier to access.”

Clive Lewis, ICAEW Head of Enterprise, added: “Business confidence is weak. Credit easing measures are aimed to support and stability to business – the new Funding for Lending scheme (FLS) only creates more confusion.

“There are already a number of existing schemes that the government has to offer. With the new scheme it is worth noting that it is entirely the banks decision as to if a business is eligible. FLS offers the possibility of cheaper finance but supply will still be an issue especially for start-ups with poor credit records.”

“Given companies current wariness of the various banks and lending, we would encourage businesses to look at all the alternative sources of finance in addition to bank finance.”

This was posted in Bdaily's Members' News section by Tom Keighley .