SMEs given bank lending boost ahead of Autumn Statement 2014

The Treasury has pledged £400 million to boost bank lending to small and medium-sized enterprises (SMEs) ahead of today’s Autumn Statement.

The package will extend government-backed venture capital funds which invest in ambitious SMEs, called Enterprise Capital Funds.

In addition, it confirmed it would guarantee up to £500 million of new bank lending to small business under the Enterprise Finance Guarantee Scheme. The scheme sees the Government guarantee 75 per cent of an SME’s bank loan, with lenders covering the remaining 25 per cent.

Meanwhile, the Funding for Lending (FLS) scheme has also been extended for a further 12 months to complement the numerous other long-term initiatives designed to improve credit availability for SMEs.

The FLS scheme, devised by the Bank of England and Treasury, began in August 2012, with the aim of increasing lending by up to £70 billion.

The scheme enables commercial banks to borrow funds from the Bank at attractive rates, so that they can pass this on in the form of cheap loans to SMEs.

However, so far it has failed to increase net lending to small firms, despite lenders drawing nearly £48 billion from the scheme.

Initially, banks could use the FLS to boost mortgage lending, but since the turn of the year it has only been available for loans to businesses. Its focus will be further narrowed until January 2016, with banks now only able to use FLS for lending to SMEs.

Chancellor, George Osborne, said: "Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy."

For a summary of Mr Osborne's Autumn Statement 2014, pinpointing the key issues interesting the self-employed, click here.

Date published 3 Dec 2014 | Last updated 3 Dec 2014