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FLS 'does not address business lending concerns'

Date Added: 18/07/2012  

The Bank of England, in conjunction with the government, recently announced the launch of the Funding for Lending Scheme (FLS), which aims to improve the flow of credit to the UK's firms.

But the idea has not been met positively from all angles in the wake of the announcement, with the British Chambers of Commerce stating that it does not address business lending concerns.

The aim of the FLS is to offer banks incentives to approve more loans to small businesses in the UK, as it is thought that helping them to grow will boost the economic recovery as a result.

Adam Marshall, director of policy for the British Chambers of Commerce (BCC), stated business owners are asking three key questions about the FLS.

He explained that these include whether or not the project will get through, who in particular it is trying to help and will it be enough to help small firms in the UK.

Speaking to the BBC Wake Up to Money podcast, the representative of the BCC said: "I think all of them are still open questions especially as the first credit easing scheme seemed to stick to the ribs of the financial institutions."

Mr Marshall highlighted the fact that even if incentives are put in place by the coalition and the Bank of England, there is a need for banks to take on more risk when they decide whether or not they should be approving loans to small businesses in the UK.

With no guarantee that they are going to be willing to do this and risk losing money on the loans they hand out, it is not for certain that the FLS is going to be a success for small firms.

"There will still be plenty of companies out there who will effectively be unbanked, just like there are plenty of consumers out there who are unbanked," said Mr Marshall, who also pointed out the sort of companies who are already lacking access to services such as these are not going to be able to benefit as a result of the launch of the FLS.

He predicted the advent of the FLS will result in the interest rates on loans given to the UK's smaller companies dropping, but noted this was not one of the primary business lending concerns over the course of the last few months.

A much bigger issue for new and growing firms in the UK is that they have found very few banks are willing to back them in the shape of loans, despite the fact the government has stated it is these organisations that are going to have to grow in order to help the nation's economy.

"Actually the single biggest complaint has been when they get denied, why they have gotten denied and why they have had a no from the bank," said Mr Marshall, suggesting there is a need for clearer communication from financial institutions on why they have made their decisions.

This feedback could help small firms to tweak their business lending applications and come back with a new plan that is more likely to get approved in the future.

Speaking after the launch of the FLS earlier in the month, chief executive officer of Aldermore Phillip Monks described it as a positive development in business lending, although he stressed it is important the project is not just aimed at the UK's big banks such as Lloyds TSB and RBS.

He also suggested it could lead to a greater range of competition within the banking sector, which he stated he been "desperately needed" in the UK for a long time.

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Posted by Miles Pritchard

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