Net lending to SMEs rose by £490m in the second quarter of 2015, according to latest figures on the UK’s Funding for Lending Scheme (FLS).
That counts as a major improvement on the same period of 2014, when SME lending plummeted by £400m. It also builds on a healthy lending climate established in the first quarter of this year, in which FLS rose by almost £650m.
According to the figures – published by the Bank of England (BoE) – Lloyds was by far the biggest contributor to the Q2 fillip, driving up its SME lending by almost £530m. Nearest rival Aldermore posted a rise of £122m, while nine other banks contributed moderate increases.
Lloyds MD of mid markets and SME banking Tim Hinton told Director of Finance: “Since the Bank of England started reporting SME lending in April 2013, we've grown our SME lending by £3.3bn in support of British businesses.
He added: “We have seen how successful FLS has been in helping small businesses grow with competitively priced funding, helping us to increase our SME net lending by 23% since the start of 2011, while the market reduced by 15%. We remain committed to participating in FLS, enabling more small and medium-sized businesses to grow, and help Britain prosper.”
At the other end of the scale, the Royal Bank of Scotland (RBS) cut its SME lending by a quarter of a billion pounds in the period. Indeed, BoE data showed that RBS’s entrepreneurial clients had repaid £266m more in Q2 than the bank had been prepared to shell out, hinting at a crisis of confidence behind the scenes.
Federation of Small Businesses (FSB) head of external affairs Colin Borland cited a spate of branch closures as critical to RBS’s reticence. “They are abandoning more and more towns and more and more locations,” he said. “If you lose the local link, businesses are less likely to go in and talk about things.”
Launched by the BoE in July 2012, FLS was designed to incentivise banks and building societies to boost their lending activities within the UK’s ‘real economy’.
It achieves that aim by providing funds to banks and building societies for an extended period, on the conditions that the price and level of funding provided are linked to overall lending performance.
The BoE and Her Majesty’s Treasury announced an FLS extension in April 2013, which was amended firstly in November that year, and again in December 2014. The later extension allows participants to borrow from the FLS until January 2016.
Summing up the initiative’s Q2 success, British Bankers’ Association director of business finance Irene Graham said: “Banks are using FLS to lower the cost of borrowing for businesses. This means that lenders are offering a range of highly competitive deals at a time when interest rates are already at a record low.”