This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.guardian.co.uk/business/2013/jun/03/business-loans-funding-for-lending
The article has changed 3 times. There is an RSS feed of changes available.
| Version 1 | Version 2 |
|---|---|
| Drop in business loans raises doubts over funding for lending scheme | Drop in business loans raises doubts over funding for lending scheme |
| (4 months later) | |
| Lending to businesses has continued to contract, despite a £16.5bn Bank of England handout to lenders since last August, raising fresh doubts about the effectiveness of the government's flagship funding for lending scheme (FLS) in bolstering credit to households and businesses. | Lending to businesses has continued to contract, despite a £16.5bn Bank of England handout to lenders since last August, raising fresh doubts about the effectiveness of the government's flagship funding for lending scheme (FLS) in bolstering credit to households and businesses. |
| Data released on Monday showed a £300m reduction in lending in the first three months of the year and put pressure on bailed-out Royal Bank of Scotland and Lloyds Banking Group to justify their £10.5bn reduction in lending since the end of June last year. | Data released on Monday showed a £300m reduction in lending in the first three months of the year and put pressure on bailed-out Royal Bank of Scotland and Lloyds Banking Group to justify their £10.5bn reduction in lending since the end of June last year. |
| Since last August, £1.8bn of credit has been drained out of the system At the same time, up to 40 lenders have accessed the £16.5bn in funding from the FLS. | Since last August, £1.8bn of credit has been drained out of the system At the same time, up to 40 lenders have accessed the £16.5bn in funding from the FLS. |
| Andrew Bailey, a deputy governor of the Bank of England and boss of the new Prudential Regulation Authority, insisted that it was not the new requirements for banks to hold additional capital that caused lending to fall. | Andrew Bailey, a deputy governor of the Bank of England and boss of the new Prudential Regulation Authority, insisted that it was not the new requirements for banks to hold additional capital that caused lending to fall. |
| "I want to reassure you that is not the case," Bailey told an audience of economists. "Additional capital supports lending by banks and does not substitute for it." | "I want to reassure you that is not the case," Bailey told an audience of economists. "Additional capital supports lending by banks and does not substitute for it." |
| Lending at the two state-supported banks, along with Spanish bank Santander, fell sharply according to the FLS data. Lloyds' lending contracted by £6.6bn and that by RBS fell by £4bn even though the two banks have taken £3bn and £750m respectively from the FLS since it began. Santander withdrew £8.6bn of credit despite taking £1bn of cheap FLS money. The troubled Co-operative Bank took £900m from the FLS but its lending contracted by £300m. The Co-op has halted all small-business lending while it tries to stabilise its business after its credit rating was slashed to junk status. | Lending at the two state-supported banks, along with Spanish bank Santander, fell sharply according to the FLS data. Lloyds' lending contracted by £6.6bn and that by RBS fell by £4bn even though the two banks have taken £3bn and £750m respectively from the FLS since it began. Santander withdrew £8.6bn of credit despite taking £1bn of cheap FLS money. The troubled Co-operative Bank took £900m from the FLS but its lending contracted by £300m. The Co-op has halted all small-business lending while it tries to stabilise its business after its credit rating was slashed to junk status. |
| Building societies increased their lending and Barclays is extending additional credit to businesses and households. | Building societies increased their lending and Barclays is extending additional credit to businesses and households. |
| RBS said the figures included planned runoffs of commercial property loans while Lloyds insisted the fall was because it was "running down certain non-core parts of our business". | RBS said the figures included planned runoffs of commercial property loans while Lloyds insisted the fall was because it was "running down certain non-core parts of our business". |
| The reduction in lending – which is hitting businesses harder than households, which are receiving attractive mortgage offers from lenders – brought fresh calls for a state-backed bank. | The reduction in lending – which is hitting businesses harder than households, which are receiving attractive mortgage offers from lenders – brought fresh calls for a state-backed bank. |
| The TUC general secretary, Frances O'Grady, said: "We need a properly resourced state investment bank that can provide the assistance firms need to grow and create jobs." | The TUC general secretary, Frances O'Grady, said: "We need a properly resourced state investment bank that can provide the assistance firms need to grow and create jobs." |
| John Longworth, director general of the British Chambers of Commerce, called for a "swift delivery" of the business bank being developed by Vince Cable. The business secretary, who has previously expressed concerns that forcing banks to hold more capital could restrict lending, said the business bank would help. | John Longworth, director general of the British Chambers of Commerce, called for a "swift delivery" of the business bank being developed by Vince Cable. The business secretary, who has previously expressed concerns that forcing banks to hold more capital could restrict lending, said the business bank would help. |
| "Whatever the banks claim about lack of interest, the truth is it has become more difficult for those SMEs that need to find finance," said Cable. | "Whatever the banks claim about lack of interest, the truth is it has become more difficult for those SMEs that need to find finance," said Cable. |
| The Bank of England said it would take time for the FLS to feed through to positive lending. | The Bank of England said it would take time for the FLS to feed through to positive lending. |
| Paul Fisher, executive director for markets at the Bank of England, said: "The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013." | Paul Fisher, executive director for markets at the Bank of England, said: "The plans of the FLS participants suggest that net lending volumes will pick up gradually through the remainder of 2013." |
| Bailey told his audience lending was expected to decline and that first year of the FLS "needs to be judged against a worse outlook for lending a year ago". | Bailey told his audience lending was expected to decline and that first year of the FLS "needs to be judged against a worse outlook for lending a year ago". |
| The pace of contraction in credit had slowed since the last quarter of 2012, when £2.4bn was sucked out of the economy, and in April the FLS was extended to a wider range of financial firms such as leasing companies. | The pace of contraction in credit had slowed since the last quarter of 2012, when £2.4bn was sucked out of the economy, and in April the FLS was extended to a wider range of financial firms such as leasing companies. |
| Howard Archer, chief UK and European economist at IHS Global Insight, said the latest data showed why the scheme had been expanded. | Howard Archer, chief UK and European economist at IHS Global Insight, said the latest data showed why the scheme had been expanded. |
| Bailey has been leading discussions with banks about plugging a £25bn shortfall in capital identified by regulators. | Bailey has been leading discussions with banks about plugging a £25bn shortfall in capital identified by regulators. |
| Only Lloyds and RBS have said publicly they can find the extra capital they need by selling off businesses, and Bailey said they had not been "let off the hook" by not being forced to raise fresh capital. | Only Lloyds and RBS have said publicly they can find the extra capital they need by selling off businesses, and Bailey said they had not been "let off the hook" by not being forced to raise fresh capital. |
| "Both of these institutions have a come a long way from their original business plans," said Bailey. "These banks have agreed to do what we have asked and we will hold them to that. That is a regulator's promise," he said, noting the stream of disposals by both banks to bolster capital. | "Both of these institutions have a come a long way from their original business plans," said Bailey. "These banks have agreed to do what we have asked and we will hold them to that. That is a regulator's promise," he said, noting the stream of disposals by both banks to bolster capital. |
| Case study | Case study |
| Sarah Brown's organic skincare company has defied the recession, but she has first-hand experience of the difficulties businesses face in getting finance. | Sarah Brown's organic skincare company has defied the recession, but she has first-hand experience of the difficulties businesses face in getting finance. |
| Since she started making moisturisers and lip balms in a converted Ealing garage in 2007 with £15,000 of her own money, Pai Skincare has grown rapidly. Now selling chemical-free creams and cleansers in more than 40 countries, the London-based company is on course to double its revenues this year to £1.5m. | Since she started making moisturisers and lip balms in a converted Ealing garage in 2007 with £15,000 of her own money, Pai Skincare has grown rapidly. Now selling chemical-free creams and cleansers in more than 40 countries, the London-based company is on course to double its revenues this year to £1.5m. |
| But Brown, 37, who became interested in the beauty business after suffering a serious skin allergy in her mid-twenties, thinks she could be doing even better. | But Brown, 37, who became interested in the beauty business after suffering a serious skin allergy in her mid-twenties, thinks she could be doing even better. |
| "We are showing tremendous growth under the circumstances, but we are not growing at our full potential," she said. "We would have grown much, much faster with decent funding in place. We got two small tranches of loans from banks, but in both instances they were probably less than half of what we really needed to drive growth. | "We are showing tremendous growth under the circumstances, but we are not growing at our full potential," she said. "We would have grown much, much faster with decent funding in place. We got two small tranches of loans from banks, but in both instances they were probably less than half of what we really needed to drive growth. |
| "We've got 10 [full-time] people now, but we would have a lot more if we had more money in the bank." | "We've got 10 [full-time] people now, but we would have a lot more if we had more money in the bank." |
| Tight access to funding means Brown has had to decline "many wonderful opportunities". | Tight access to funding means Brown has had to decline "many wonderful opportunities". |
| "We have turned down some big store chains. We felt we couldn't do it until we had funding in place," she said, anxious to avoid the "terrible cashflow problems" of expanding too quickly. | "We have turned down some big store chains. We felt we couldn't do it until we had funding in place," she said, anxious to avoid the "terrible cashflow problems" of expanding too quickly. |
| Limited access to loans has also put a brake on new product launches. At any one time, the company is developing eight new products, but getting them to market can only happen in a piecemeal way when the money is available for the costly process of packaging and marketing. | Limited access to loans has also put a brake on new product launches. At any one time, the company is developing eight new products, but getting them to market can only happen in a piecemeal way when the money is available for the costly process of packaging and marketing. |
| "I am very optimistic about our future. We are struggling to keep up [with demand]," she says. "But the key thing the government needs to grip is bank lending." Jennifer Rankin | "I am very optimistic about our future. We are struggling to keep up [with demand]," she says. "But the key thing the government needs to grip is bank lending." Jennifer Rankin |
| Our editors' picks for the day's top news and commentary delivered to your inbox each morning. |