It is no secret that small and micro businesses suffer compared to their larger competitors when it comes to trying to access finance. Self employed individuals are often considered by banks to be much riskier propositions than a more established company which employs staff and has a track record that has been documented.
Following the economic crisis of 2008, things became even trickier for smaller businesses as banks were reducing their lending overall and fewer applications were being made for finance. This hit small businesses particularly hard as many had few options for downsizing or minimising their outgoings as they were already working to strict budgets.
The Bank of England’s attempts to stimulate the economy through low interest rates had a minimal impact on the situation as far as small businesses are concerned, and although many were able to pay off debts at a faster rate, new borrowing still did not pick up hugely.
By 2012, the situation had been acknowledged as a problem, which the bank of England tried to rectify with its Funding for Lending scheme. This was designed to push down the cost of borrowing and minimise the risk to the lenders themselves by offering £80 billion worth of cheap credit from the central banks which was designed to be pushed out to those who needed it. In 2014, the scheme was altered to ensure that it was directly targeted at the small businesses that needed it most.
The results of this move had turned out to be positive and a report out last week showed that the first quarter of 2015 saw net lending to SMEs in the UK increase by £600 million. Bank officials are pleased with this news, especially after the disappointing results following the original changes to the programme in 2014, when net lending to small and medium sized businesses fell by £2 billion.
The Bank of England cannot rest on its laurels though, as the scheme is some way away from being declared a success. The SME lending data shows that there is a huge variance in the distribution of finance and it is still very tight when it comes to smaller borrowers.
The Bank of England is missing some more detailed data about the way lending is being handled amongst micro businesses as these are the ones most likely to be unable to access finance. The Bank of England needs to find ways to ensure that their efforts find their way to where they are most needed.
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