Getting banks lending
Funding for Lending scheme
In July 2012, with our support, the Bank of England launched Funding for Lending. This is a scheme allowing banks and building societies to borrow from the Bank of England at cheaper than market rates for up to 4 years. It helps them to increase lending to businesses by lowering interest rates and increasing access to credit.
In April 2013, alongside the Bank of England, we announced a 1 year extension to the Funding for Lending scheme, until January 2015. We added incentives to boost lending towards small and medium-sized businesses.
In November 2013, alongside the Bank of England, we announced changes to the terms of the Funding for Lending scheme extension. We will continue to concentrate on lending to small and medium-sized businesses in 2014.
British Business Bank
Many businesses find it difficult to access the finance they need to invest, grow and create jobs.
We’re setting up the new British Business Bank to help make sure finance markets for small and medium-sized businesses work effectively. This will allow those businesses to prosper, grow and build UK economic activity.
The British Business Bank will manage all government programmes that help smaller businesses to access finance. It will not lend directly to businesses but will work alongside the private sector partners. It will pull in more private sector funding to maximise its impact.
British Business Bank programmes are already producing significant results. In 2013, it supported £660 million of lending and investment to smaller businesses. This was 73% higher than in 2012, and over half of it was through alternative lenders. For details of programmes managed by the bank see the British Business Bank website.
Over the next 5 years, the British Business Bank aims to work with the market to provide access to up to £10 billion for viable smaller businesses. It will play a significant role in developing a more diverse competition in business finance markets.
We expect the British Business Bank to become fully operational in autumn 2014 once it has gained EU State aid clearance.
For more information visit the British Business Bank website.
Enterprise Finance Guarantee (EFG)
EFG is a loan guarantee scheme. It allows banks and other lenders to offer small businesses, which lack security or a proven track record, a normal secured commercial loan.
The guarantee is to the lender and does not reduce or remove the borrower’s obligation to repay the debt in full under the terms agreed with the lender. Lenders can use EFG to help businesses get term loans, overdrafts and invoice finance facilities. The British Business Bank provides lenders with a 75% guarantee on each individual loan issued under the scheme. This is subject to a 20% limit on total claims arising from each lender’s annual portfolio of lending. This means that there is a sharing of risk between the lender and the government. As the guarantee allows the borrowing business to access finance, which would not otherwise be available, the borrower pays a 2% annual premium. This acts as a contribution towards the cost of providing the guarantee.
Currently, 42 lenders are part of the scheme, including:
- all main UK high street banks
- smaller specialist banks
- invoice finance providers
- community development finance institutions (CDFIs)
Lenders operate the scheme on a devolved basis and are responsible for all lending decisions.
The greatest lending value that we will guarantee is:
- £1.2 million if the term is no more than 5 years
- £600,000 if the term is over 5 but no more than 10 years
Small and medium-sized businesses with turnovers of up to £41 million can get EFG-backed loans.
This scheme will run at least until 31 March 2015. It makes around £350 million of extra lending possible each year.
If a business believes EFG may be appropriate to their situation, they should contact an accredited lender directly. All decision-making is devolved to the lender. They will, if appropriate, make the loan under their own terms and conditions, with the backing of the EFG guarantee.
See detailed Enterprise Finance Guarantee guidance.
Working with banks
We’re also working with the British Bankers’ Association to improve the standards small businesses can expect from their banks. This partnership is known as the Business Finance Taskforce.
The taskforce aims to get banks working differently so that they can help small and medium-sized businesses. Benefits include:
- being able to ask their bank directly for an appeal if they’re refused a loan, known as the bank appeals process
- being able to ask the banks what they’re lending
- getting help and advice on getting a loan from the better business finance website.
Bank appeals process
The Business Finance Taskforce set up the Bank Appeals process overseen by Professor Russell Griggs, which allows a small or medium-sized business with a turnover of less than £25 million to appeal against a banks’ decision to decline them a loan.
More than 9,000 businesses have already used the process, resulting in £42 million of further lending.
Business Banking Insight Survey
Commissioned by the Chancellor, Business Banking Insight is a major new survey into the way banks perform for small businesses. It provides an insight into, and a ranking of, the best banking institutions and products and services for the UKs small or medium-sized business.