It is believed that the government is set to announce an extension of the Bank of England’s flagship Funding for Lending Scheme.
It will help small and medium size businesses cope with the continued recession and a lack of growth. The scheme which was expected to conclude at the end of January, 2014, now looks as if it will be extended for a further year. If this proves to be true, then this initiative is something SMEs and accountants will welcome.
The original Funding for Lending Scheme agreement, which was unveiled last summer, failed to generate a sufficient spark to ignite the economy. This was in spite of the fact that both the Bank of England and the Treasury had worked tirelessly to extend the scheme to asset-based lenders, leasing firms and invoice finance houses to ease the strain felt by the SME sector. The latest GDP figures may show that the UK escaped a triple-dip recession during the first quarter of 2013, but never the less the economy only grew by a meagre 0.1% during that time.
The reason for the importance of the proposed announcement is that asset finance remains crucial to SMEs as the only viable alternative to generate funding, by lending against invoices and machinery. By extending the FLS scheme for a further year, it is believed the Chancellor, George Osborne, hopes to boost and bolster confidence in a sector that is responsible for almost half of private sector employment.
According to the Finance and Leasing Association, asset finance is growing steadily.
The Association has revealed that asset finance raised £21 billion in 2011 and supported £12 billion of investment by small and medium sized businesses. A 9% increase had been forecast for 2013, following on from a disappointing increase of only 6% in 2012. Unfortunately these levels still remain well short of the level of investment in the sector which stood at £30 billion before the economic crash.
Mark Carney, the incoming Bank of England Governor, has confirmed that many other central banks have successfully used FLS as a benchmark for financing the SME sector.