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Bank refocuses FLS on businesses

Fiona Nicolson

Colin McCallum of Heritable in Edinburgh said: “Lots of small businesses could do with more access to finance.

“The issue, though, is the level of skill in lending institutions – they cannot always tell the difference between good and not-so-good lending opportunities. I believe this comes from the top of the organisation and permeates downwards.

“Politicians need to put some pressure on lending institutions to sort this out.”

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Last month, the Bank of England announced a switch of focus for the scheme, which was launched jointly by the Bank and the Treasury in July 2012.

The scheme, which was established to encourage banks and building societies to lend across all areas of the economy, will now focus on lending to businesses, rather than mortgage borrowers.

The Bank said that although “the growth in household loan volumes remains modest”, activity in the housing market is increasing, and house price inflation is also gathering speed. Therefore, it argued that there is no longer a need for the FLS to provide further support to household lending.

The Bank clarified that the changes will not affect the government’s Help to Buy Scheme, given that this was designed to address the specific issue of access to mortgages for borrowers without sufficiently large deposits.

It also confirmed that the Financial Policy Committee had welcomed the changes and that the Monetary Policy Committee had concluded that they would have no material impact on monetary policy.

Commenting on the changes to the scheme, Mark Carney, governor of the Bank of England, said: “Over the past year, the Funding for Lending Scheme has contributed to the recovery by helping to significantly improve credit conditions, especially for households. The changes refocus the FLS where it is most needed – to underpin the supply of credit to small businesses over the next year – without providing further broad support to household lending that is no longer needed.”

Chancellor George Osborne said that the scheme had proved to be a “successful tool in supporting the recovery”.

Commenting on the changes, he said: Now that the housing market is starting to pick up, it is right that we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That’s why we are reforming the banks, introducing the employment allowance and now focusing the Funding for Lending Scheme to support them.”

Adviser view

Stuart Inman, director at Hearnden Associates in Surrey, said this is a positive development for small businesses: “Since the credit crunch kicked in, it has been difficult for small businesses to borrow money. The Funding for Lending Scheme was set up for this purpose, but it is the one thing that hasn’t happened. This will be more beneficial for the economy, as funding for small businesses means that they can invest in their businesses, creating jobs and extra tax revenue for the government.”