Hope for SMEs

I feel for many smaller businesses, I really do.

They're just not getting the funds they need to develop and grow - from the banks anyway.

The latest Funding for Lending Scheme (FLS) data underlined this fact once again. I won't drown you with figures but basically, net lending by the 36 banks signed up to the FLS fell to -£3.9 billion between April and June, way below the -£2.7 billion in the first quarter.

For SMEs in particular, net lending flatlined or fell across 24 of the participating banks. Net lending to SMEs at Nationwide was especially weak, at -£501 million during Q2.

In short, for SMEs, most of the major UK banks and building societies continue to have the shutters firmly down.

With this in mind, you could certainly argue that the Funding for Lending Scheme has been a failure. It may have sparked mortgage lending but on the business side it has fallen well short, most now admit.

Its main aim, after all, was to get the banks lending to the businesses of tomorrow. This hasn't happened.

John Longworth, the Director General of the British Chambers of Commerce, summed it all up very well when he said: "Funding for Lending continues to disappoint. The real test for the scheme has always been whether it is able to get credit flowing to young and fast-growing businesses. Unfortunately many of these firms remain frozen out when it comes to accessing the finance they need to fulfil their potential."

The underwhelming FLS figures were reinforced by separate data emerging from a Bank of England credit report on Monday. This, in turn, showed that loans (including overdrafts) to SMEs fell by £0.4 billion in July, compared to the average monthly decrease of £0.3 billion over the previous six months. The twelve-month growth rate was a thoroughly disappointing -2.6 per cent.

Thankfully, bank lending is becoming just one distribution channel among many others. Companies have woken up to the wealth of alternative finance providers that are - would you believe it - accommodating their needs.

The growth of alternative finance providers, which includes bridging lenders, is also making for a more competitive borrowing landscape, as the wave of new lenders compete for business.

So while the banks not lending remains a disappointment, in the long term we are heading for a far more balanced, diversified and competitive lending environment where banks are no longer the default option.