The Funding for Lending scheme is only in its infancy but already there are reports of a lukewarm reception from businesses. Does this spell doom for the SME finance initiative or are we seeing the impact of the growth of alternative SME finance, such as invoice discounting and asset finance?
Some commentators are writing off the Funding for Lending scheme, and in particular its ability to bolster bank small business lending, just days after its official launch. Certainly, the scheme hasn’t sparked an eruption of SME lending from banks, but given their track record in recent years, slow progress should hardly come as surprise.
Indeed, this caution has led to significant growth in the alternative SME finance sector, with a wide range of new small business funding options emerging in 2012 alone, and arguably this expansion is another barrier to the success of the scheme, which notably doesn’t include third-party SME finance products. Businesses have turned to alternative finance and see little reason to change strategy.
So, it can be argued that the Bank of England-backed scheme is hamstrung by a combination of an ingrained lack of confidence in banks and its narrow remit. However, the scheme shouldn’t be written off just yet, especially as the likes of invoice finance often work best when complementing the use of traditional SME lending services.
Not that the alternative finance sector will be complaining too much about the position the banks find themselves in. A recent study recently cited by growthbusiness.co.uk highlights a growing trend away from bank SME lending, with over a quarter of entrepreneurs expected to use services such as invoice discounting and asset finance to source start-up funding. Dependence on banks continues to fall.
So, the Funding for Lending scheme hasn’t burst out of the blocks, but perhaps it was never going to. The growth of alternative SME finance has become such that there was never going to be an immediate wide-scale return to banks. Banks will remain an established source of small business credit but services such as invoice finance are taking on an increasingly central role.
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