England’s SBA Style Programs an Epic Failure
July 24, 2013
By Bob Coleman
Editor, Coleman Report
Limited access to capital for Main Street is a worldwide problem that extends from America’s shores.
Add the UK to the list of failed government policies for Main Street.
A “scheme” to get £1.1 billion to middle market firms has only funded £5 million in the past two years.
Writes the UK’s Independent, “But the meagre distributions under a scheme unveiled some 20 months ago are nevertheless likely to lead to suspicions that the scheme is the latest in a catalogue of Treasury business lending scheme flops.
“The Bank of England statistics this week showed that net business lending fell by £4.5bn in the three months to May.
“Lending to the business sector has been negative since the 2008-09 financial crisis, despite a host of government schemes. Small businesses have been especially hard hit by the failure of the banks to lend.
“George Osborne has spent an inordinate chunk of his time in office examining ways to increase the flow of lending to businesses, but with little success.
“First, in 2011 there was Project Merlin under which the big banks agreed to lend £190bn to UK firms in exchange for being allowed to pay large bonuses to their employees. The problem was that these were gross, not net, lending targets. By making loans available to some firms and taking credit facilities away from others, banks could hit their quotas while actually shrinking their overall loan books. That is precisely what happened. Net lending to business fell in every month of 2011.
“The following year the Treasury set up the National Loan Guarantee Scheme. It was supposed to encourage banks to lend by guaranteeing £20bn of their wholesale borrowing over two years under the condition they passed the money to small businesses. Treasury accounts reveal just £2.9bn in guarantees were made under the scheme.”
“Last summer, the Bank of England established the Funding for Lending Scheme (FLS). This offers banks cheap credit in return for them lending to small firms and households. It has boosted the supply of loans to mortgage borrowers, but businesses have seen little benefit. Participating lenders had drawn down £16.5bn under the scheme by the end of March, while also shrinking their aggregate stock of lending by £1.8bn. In April the Bank announced that the FLS incentives for small business lending would be sharpened.”