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What does Funding for Lending failure mean for SMEs?

News that the remodelled Funding for Lending scheme has failed to inject impetus into SME lending underlines the status of non-bank finance.

Another week, another report on small business lending that illustrates the importance of non-bank finance services such as invoice finance and peer-to-peer lending. According to the Bank of England, net lending to SMEs in Q2 under the scheme fell by £435 million. These data follow the release of figures from the British Bankers’ Association that show a significant decline in bank lending to small businesses in July.

The Funding for Lending scheme was reconfigured at the end of 2014 to focus solely on SME lending, and it was hoped that this switch would arrest the slump in small business funding. Its failure to do so is illuminating. While it would be easy to criticise the scheme, perhaps the larger problem is the model of bank lending that it is trying to promote. The rise and rise of non-bank finance shows that this traditional lending model is no longer the answer. Banks’ growing interest in alternative finance gives credence to this argument.

That’s not to say that traditional lending service providers no longer have a role to play – after all, despite the erosion in trusts, banks still dominate this marketplace. However, the SME finance landscape has changed and non-bank finance is very much a prominent feature that is here to stay.

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