The Business Secretary, Vince Cable, has admitted that the Government’s Funding for Lending scheme is not working – as net lending to SMEs fell in the first two quarters of this year.
The scheme was designed to encourage lenders to provide more credit to smaller businesses, but recently the number of bank’s providing these loans has plummeted.
It was recently revealed that during the first quarter of 2014 lending fell by £723m, which was followed by a further £435m drop in the second quarter.
Speaking during an event for the British Business Bank, which was reported in the Times, the Business Secretary said that the bank restriction of credit to SMEs “persisted to this day” with more and more money being taken away from SME lending.
Mr Cable said: “Ever since I got into government I’ve been having conversations with George Osborne about how we get small business lending going.
“Our initial instincts were, we have these big banks who have been rescued by the state, why on earth don’t they do it? For a variety of reasons, it never happened.
“They were left at an arms’ length basis, there was difficulty with the private majority shareholders of RBS and the Treasury didn’t want to go down that road, they were interested in preparing them for privatisation, so that route didn’t work.”
Cable also blamed banks for giving business owners a “bad deal” saying that SMEs were being forced to take matters into their own hands.
Banks have recently been forced by government to ask SMEs if they would like their information shared with alternative lenders should the business be rejected for a bank loan.
This was followed in August by the George Osborne encouraging SMEs to seek financing from crowd-funders, peer-to-peer lenders and invoice financiers.