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Funding for Lending failure reinforces invoice finance role

The new SME bank has been grabbing the headlines but latest figures regarding the Funding for Lending scheme are just as newsworthy. The initiative has fallen short of its lending goal, a performance that underlines the importance of invoice finance.
SME sector frustration at the Funding for Lending scheme has been increasingly vocal, with business leaders expressing concern that the funds will not end up where they are needed the most. While the timing of such criticism could be construed as a little unfair – the scheme is barely a few months old – new figures concerning mortgage and small business lending through the initiative suggests that there is some foundation to the comments.
The Bank of England aimed to facilitate the creation of a pot of £80 billion that banks would use to provide cheaper SME loans. As of the end of September, funds totalling £60 billion had been raised, falling short of the target. In addition, new British Bankers’ Association figures show that lending to private, non-financial companies contracted by £1.5 billion in August. While the decline is in line with recent trends, it had been hoped that the Funding for Lending scheme would spark more SME lending.
Small business lending figures for September will paint a clearer picture of the performance of the Funding for Lending scheme, but following the announcement that the government is to launch a British business bank that will focus on SME lending and bypass the traditional banking system, it is difficult to see the initiative bucking the trend of its predecessors, such as Project Merlin.
Such performance and sentiment only reinforce the role of alternative finance. Peer-to-peer lending will reportedly feature in the new SME bank and, given the growth in popularity of services such as invoice discounting and factoring, its role in providing start-up funding and maintaining cash flow looks certain to continue to grow, whether as part of Vince Cable’s new institution or in tandem with it.
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