The Bank of England has recently published data on the use of the Funding for Lending Scheme (FLS) which shows the net quarterly flow of lending to UK small and medium-sized enterprises (SMEs) and non-bank credit providers (NBCPs), and the amount borrowed from the Bank in the third quarter of 2015.
Net lending by FLS Extension participants to SMEs was £0.7bn in the third quarter of 2015. This compares with quarterly net lending to SMEs in 2015 Q2 by FLS participants of £0.4bn, while the quarterly average for 2014 was −£0.5bn.
Aggregate net lending to SMEs (i.e. including lending by banks and building societies not participating in the FLS) was also positive in 2015 Q3, and the annual growth rate in the stock of lending to SMEs became positive, continuing the gradually rising trend seen over the past few years.
Most survey evidence suggests that credit conditions for SMEs continued to improve in Q3. For example, according to the Federation of Small Businesses’ Voice of Small Business Index, there was some improvement in credit affordability among small businesses. Respondents to the Bank’s Credit Conditions Survey also reported that both credit spreads and fees and commissions to small companies had fallen in 2015 Q3, although they increased slightly for medium-sized firms. However, credit conditions for SMEs remain tighter than for large corporations as noted in the 2015 Q3 Credit Conditions Review. Improvements in credit conditions over the past few years in part reflect developments in bank funding spreads; despite a slight rise in some measures over the past few months, they remain significantly lower than at the time of the launch of the FLS in 2012.
On 30 November, the Bank of England and HM Treasury announced a two-year extension to the FLS, to provide participants with additional flexibility to draw unused drawing allowances earned for positive net lending, with funding remaining available to support further improvements in credit conditions for SMEs. The extension will also ensure that the Scheme is gradually phased out, with borrowing allowances reducing over time, thereby minimising risks to the economic recovery from the withdrawal of funding support.