The Funding for Lending scheme was officially launched last week and all eyes are on the latest government-backed SME finance initiative. The pressure is on to perform better than previous schemes and invoice finance could be key to its success.
The scissors had barely made contact with the ribbon before the Funding for Lending scheme, designed to stimulate mortgage lending and small business lending, was creating headlines. The unveiling had barely begun before Halifax had launched its lowest ever five-year fixed-rate mortgage. Nationwide and the Clydesdale Bank have also introduced lower rates.
So, there has already been some movement in terms of mortgage lending, but what about SME credit from the main banks? Small businesses have long argued that banks’ over-cautiousness in terms of SME lending has checked development plans, putting pressure on cash flow and start-up funding. The Bank of England-sponsored Funding for Lending scheme is the latest answer to this problem and as yet, we’ve seen little movement in terms of improved conditions for small business finance.
So, can this latest initiative succeed where its predecessors have failed? It’s too early to say but the development of alternative SME lending facilities, in particular over the last six months, may actually help it have a positive impact on small business lending in the UK.
Underpinning the growth of the alternative SME credit sector, which has grown rapidly recently, are small business lending facilities such as invoice discounting and factoring. With these products becoming increasingly established, there is arguably less pressure on traditional bank SME lending services. Hence, the Funding for Lending scheme may have more room for manoeuvre and more chance of success.
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