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Why Funding for Lending top up confirms invoice finance role

The Chancellor’s decision to top up the Funding for Lending scheme with an extra £20 billion for SMEs underlines not only the slow progress the initiative has made to date but also the importance of invoice finance and alternative SME lending.

Perception of the Funding for Lending scheme has improved in recent months as subsidised credit to high-street banks has helped spark an upturn in mortgage lending conditions. However, its impact on household lending has not been mirrored in terms of SME finance. Hence, the injection of more cash specifically aimed at providing better access to small business lending.

The move illustrates how little benefit small businesses have felt from the scheme since its launch, a short fall that was put under the spotlight in the wake of the 2013 Budget, of which a British Business Bank was a major theme. Indeed, Business Secretary Vince Cable had been moved to threaten traditional lenders over the lack of progress in terms of SME lending.

However, the extra cash also emphasises the role alternative finance, and in particular invoice finance, plays in small business funding. With traditional lenders remaining cautious over SME credit, invoice finance has become a lifeline for businesses needing to maintain cashflow. The growth of this transparent, flexible SME finance product has helped plug the gap where high-street lenders and government schemes have come up short.

The Funding for Lending scheme was always expected to take longer to boost SME lending and the recent injection of cash may spark long-awaited movement. However, with caution still the overriding sentiment in a much-changed financial landscape, invoice finance still has a key role to play in providing vital small business credit.

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