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FLS lending to small businesses shrinks

LENDING to small and medium-sized businesses remains constrained after the government’s Funding for Lending Scheme performed poorly in the three months to the end of June, figures from the Bank of England have shown.

The scheme was launched by the Bank of England in August 2012 as part of government attempts to boost lending to small businesses by providing banks with incentives to lend money cheaply. It was changed last November to exclude incentives around mortgage lending in order to stimulate business lending, but the latest figures show net lending contracted in the second quarter.

According to the Bank of England, net lending, which takes into account repaid loans, to SMEs dropped by £435m. Net lending to all businesses under the scheme contracted by £3.9bn, widening from a £2.7bn drop in the first quarter.

Disappointingly for the scheme the poor performance comes at a time when economic conditions have improved and businesses should be thinking about funding growth plans.

“These figures would surely be worse still if Funding for Lending was not in place, and it is true there is a weakness in demand, but it remains disappointing to see less money being lent in this crucial part of the economy,” said Phil Orford, chief executive of the Forum of Private Business.

“Without more lending to small businesses their growth and the country’s growth will remain slow. Politicians of all parties need to have a hard look at the lending sector ahead of their conferences in September and October. Our members believe that measures to support better and wider bank lending to the small business sector is a crucial component of any prospective government’s manifesto.”

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