The number of UK lenders involved in the Funding for Lending
scheme (FLS) has increased to 30. The number more than doubled in
the past month, rising from 13.
The banks currently signed up account for £1.33 trillion of
lending to households and businesses. This represents around 80 per
cent of lending in the UK economy.
The scheme, launched by the Bank of England, aims to boost
lending by reducing funding costs. Under the scheme lenders can
access funds at low rates of interest as long as they commit to
grow the amount they lend.
However, according to the Financial Times, the value of
outstanding loans eligible for low-cost funding has barley moved-
underscoring the lack of competition in Britain's banking
The newspaper wrote, "Even with 17 new lenders, the total
value of loans covered by the low-cost funding arrangement has
barely budged, rising to £1.3 trillion from £1.2
The lack of competition means that the success of the scheme,
and the impact it has on businesses, lies with the 'big six'. Five
of the 'big six', apart from HSBC, have signed up.
In September the BoE's Paul Fisher noted how much control the
largest bank have over the market. He said, "The six biggest
lenders account for the vast majority of lending to UK businesses
and households- and the seventh largest account for less than a
third as much as number six."
There are signs that the scheme is beginning to work as consumer
lending has grown. September also saw an increase in mortgage
approvals. However it hasn't had a direct impact on businesses
Ernst & Young predicted that commercial lending would drop
by 4.6 per cent in 2012. Many experts are still questioning the
ability of the scheme to stimulate lending. Hilary Osborne, of the
Guardian, argues that the scheme will result in banks
using low cost lending to win 'tried-and-tested borrowers'
rather than investing in those who need it most.
Mr Fisher continued, "Not necessarily every bank will
support every sector. But if the big firms don't than the smaller
banks will. We are relying on the pressures of demand and supply,
and competition, to ensure that credit flows to where there is
Businesses also need to take responsibility
Numerous surveys have shown that businesses want to grow but are
struggling to obtain lending, particularly SMEs. Businesses can
improve their chances of being approved for lending by improving
credit ratings and having a proven track record. Graydon offers
some tips on how a business can improve its credit
score and its chance of receiving financial backing.
Lending is dwarfed by trade credit so it is equally important
for businesses to pay and to be paid promptly, effectively managing
their cash flow. Craig Evans, Head of Business Development at
Graydon, said, "Trade credit is the biggest amount of available
funding to businesses."
He added that it was 'absolutely' vital for businesses
to be able to demonstrate good credit management.
Mr Evans explained, "With more and more trade payment data
being used by credit reference agencies to provide more relevancy
of the true creditworthiness of a company it is vital for
businesses to be able to demonstrate they can pay their suppliers
on the agreed terms. This demonstrates the business has good
credit management and could lead to further funding."
Graydon provides a factsheet explaining credit ratings and how to use them
to benefit a business.
The lack of competition in banking in the UK could mean that the
FLS fails to have the desired impact. BoE's executive director for
financial stability, Andrew Haldane, has said that the lack of
competition was, in part, to blame for the banking crisis.
Speaking on Monday, 29 October, he added, "The most shocking
statistic is that, up until 2010, no new bank had been set up in
this country for a century."