Ian Currie, director of the corporate finance advisors Seneca Partners, has said that despite Weekend at Bernie's-style posturings to the contrary, the Funding for Lending scheme is dead in the water.
“Two years on from launch, the Funding for Lending Scheme resembles the Monty Python parrot,” said Mr Currie. “The high street banks insist it is alive and well, but in reality its vital signs are those of a dodo.”
The financial advisor said that the reasons for the failure of the scheme is truly a puzzle.
“It [the Funding for Lending Scheme] gave the banks access to a cheap and plentiful supply of cash, and the demand for borrowing from businesses seeking to grow – or just manage their cashflow – has stayed strong. And yet the conventional credit pipeline has stayed blocked, and net bank lending to businesses is shrinking faster now than at the start of the year.”
As a result, some critics accuse the banks of not doing enough to publicise the initiative, or blame the complicated application process for businesses’ low uptake of bank loans.
“But,” said Currie, “the principle roadblock lies within the banks themselves; it’s the branch managers who have turned risk aversion into a mantra. With the knowledge that their neck would be on the line for any loans that go bad, some have even discouraged small businesses from applying.
“Coupled with the widespread perception among businesses that the banks’ default answer will be ‘no’, it’s no wonder mainstream lending to business continues to tumble.”
As a result of this, an army of alternative finance providers has emerged to fill the gap. However, Currie believes the Government must do more to encourage them.
“Extending EIS to those offering loans to – rather than just investing in – companies seeking finance would be a good place to start,” said Currie. “But moribund though it is, now is not the time to bury FLS. If the position is bad now, it would be even worse if the banks were deprived of the cheap cash it provides.”
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