Cheap money scheme fails to boost lending to small businesses

The Funding for Lending Scheme (FLS) was launched in mid-2012 to provide cheap money to banks on condition that they lend to businesses and households. It was amended at the start of 2014 to focus on small business lending.

It was an antidote to moves by Britain’s biggest banks to cut back on lending and shed assets to meet tougher rules on capital imposed by regulators after the financial crisis.

However, its impact has so far been muted and there are fears that a lack of credit available to small firms could hamper the economic recovery.

Lending to small businesses by banks and other lenders in the scheme dropped £128m in the three months to the end of September, a smaller fall than earlier in the year and for much of 2013.

Total lending, which included credit to large firms, fell by £2.4bn. The biggest overall decline came at state-backed Royal Bank of Scotland and Lloyds Banking Group, which have cut back drastically on lending to large firms since their bailouts.

Banks have pointed to a lack of demand from borrowers despite the economic growth.

Two thirds of Britain’s smaller companies are aiming to pay off their debt and not borrow more, according to a survey.