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Loans for Small Companies

Written By On 25/04/2013

Yesterday George Osborne announced his intentions to do more for small and medium sized businesses in the UK by making changes to his flagship Funding for Lending Scheme (FLS).

To help the smaller firms that need the cash loans in order to become stronger, the Chancellor is to offer the banks an extra incentive. He is to increase the initial amount of cheap funding originally accessible to banks by ten times if needed.

But as part of the new scheme he is also adding other financial institutions that lend, including leasing companies that are responsible for funding small firms with twenty billion pounds . The extra funds will only be available to the banks and lenders on the provision it is passed on to the smaller companies that qualify. The funding will be extended by a year and will now be available until January 2015.

Mr Osborne said he believed the modifications to the FLS will be a "big boost for the small and medium-sized businesses that are at the heart of the British economy."

Vince Cable, business secretary, was in full support saying

More credit for small businesses is essential to building a stronger economy. Alongside the business bank that I am setting up, the funding for lending scheme is a targeted intervention to help deal with this problem. It is right that it is skewed towards the SME sector which has suffered the most from the credit crunch.

The BOE said that extending the scheme would give banks the confidence that is needed to lend more immediately. They added that by updating the FLS to provide extra cheap funding, it will incentivise the lenders to offer loans to smaller companies.

They said even with the improved credit terms the FLS had implemented that

risks remain of renewed stresses in bank funding markets, triggered for example by adverse developments in the eurozone, which might undermine the recovery in credit conditions.