RBS announced that it will use the Bank of England's Funding for Lending scheme to offer UK manufacturers cheaper funds to boost growth.
For the first time, RBS’s manufacturing fund will be targeted specifically at mid-sized businesses with a turnover between £25m to £500m. Funding for Lending was put in place by the government to encourage banks to lend more to businesses.
Mid-sized businesses represent over 30% of the UK’s manufacturing base and are seen as a key source of future growth. The CBI has said they could add between £20bn to £50bn to annual gross domestic product growth if they reach their potential.
“Mid-sized manufacturers are key in helping the UK grow and export out of recession. Through Funding for Lending, these are the most competitive terms that we have been able to offer manufacturers for several years. We hope it will be a catalyst for investment,” said Peter Russell, head of manufacturing at RBS.
Manufacturers have struggled with access to finance due to the long time period it takes to re-pay and heavy investment that is required. The RBS fund will offer UK manufacturers fixed and variable rate loans of between £250,000 and £25m with companies able to defer any repayments for two years, which will help to alleviate borrowing fears.
Funding for Lending allows banks and building societies to borrow from the Bank of England for up to four years, providing business and mortgage loans to the Bank of England as security against that lending. Banks are able to borrow during the 18 months from 1 August 2012 until 31 January 2014.
The more that they lend, the more they can borrow from the Bank of England. Banks that are increasing their lending will pay the lowest fee on their borrowing while those that reduce their lending they will pay a higher fee.
RBS have chosen to use this scheme to boost lending to manufacturers, which will be able to access loans over three and five-year periods.
The 82% state-owned bank has cut its lending rates on three-year loans from 3.45% to 2.75%, and slashed fixed rates have are 2.75% and 3.2% respectively (down from previous rate of 3.45% and 4.25%).
Matthew Fell, CBI director for competitive markets, said: “This is a welcome move from RBS, swiftly putting the Funding for Lending scheme into action to offer mid-sized manufacturers more accessible rates of borrowing. We believe that, these [medium-sized] companies could help to rebalance the economy if their potential is fully unlocked.”