The government has announced that the Funding For Lending scheme is to be extended, so surely this should be good news for the UK economy and for UK businesses, but is it?
The scheme was designed to provide capital to banks at better rates than they could raise themselves, with this saving being passed on to the business in terms of lower interest costs or a rebate on interest and fees etc.
The misconception is that the funding for lending scheme makes business borrowing easier.
The banks (and we use this term collectively, although not all banks are signed up for the scheme) have access to cheaper capital to lend, however what hasn’t changed is the terms under which the banks are approving business borrowing.
It is similar to Tesco thinking that they could solve falling sales by putting more product on their shelves. They are not addressing the core issue, which is the question of why the product is not being purchased.
The banks do not have a shortage of capital to lend, what they do have is a very cautious attitude to lending. Our opinion is that this attitude is too cautious, although we can understand caution given bad debts seen.
Why Has The Government Extended The Scheme Then?
This may have as much to do with the IMF (international monetary fund) visiting the UK next month, and some criticism of the governments economic policies than anything else.
However, if the IMF have concerns and the ratings agencies are reviewing the UK’s credit rating then the devil is in the detail, not that concerns exist but what the economics are behind it.
If you want to know more about the funding for lending scheme then please contact us via the website, phone on 01293 541333 or add your comments above.