Last reviewed 14 August 2012

Martin Posner reports on recent developments in the Funding for Lending scheme.

Funding for Lending

At last, we have definite news on the Funding for Lending scheme. On 25 July 2012, the Royal Bank of Scotland and NatWest announced that they will use the new Bank of England funding scheme to offer better lending rates to small and medium-sized enterprises (SMEs).

SMEs can now apply for loans (as from 1 August 2012) and they will see that fixed-rate lending will fall by an average of 1.6%. The minimum loan will be £25,000 and all clearers agreeing to use this scheme will remove the arrangement fees on £2.5 billion of new SME loans, saving an estimated £40 million in fees for SMEs.

John Cridland, the CBI’s Director General, said that this is a welcome move from RBS and NatWest. These lenders have swiftly put the Funding for Lending scheme into action to offer business customers more accessible rates of borrowing.

Many SMEs are poised to grow and create new jobs, but they have been put off doing so because of the rising cost of finance. This development should make a positive impact at ground level. Any business, even if not a customer of RBS or NatWest, can apply for the loans.

According to these lenders, the best fixed rate for loans of between £25,000 and £250,000 would be roughly 3.98% over 5 years. The actual cost of the loans will obviously depend on the strength of the business, the sector they are working in and their customer base.

After RBS and NatWest announced they would participate, Barclays Bank has also agreed to join in the scheme.

Potential members

The Co-operative Bank has welcomed this announcement and the move to help kick-start the economic recovery, and is carefully assessing the impacts the scheme would have on its customers and the wider market. It hopes shortly to make a decision regarding its involvement, which it says will be based on what it believes to be in the best long-term interest of its customers and members.

When asked about its position regarding the Funding for Lending scheme, HSBC stated that it is unusual in the banking world, in that it is self-funding. It added that it has an asset/deposit ratio of only 74%, and does not therefore need access to this latest government scheme. However, HSBC says it supports fully the Bank of England’s scheme, as this initiative’s innovative structure is designed to support growth in the UK.

A spokesman explained that HSBC is predominantly funded by customer deposits and continues to enjoy a very solid funding position, while making strong progress on increasing lending to both businesses and consumers. It will therefore continue to fund its planned lending growth through its own resources rather than accessing the Funding for Lending scheme. The spokesman said, however, that should circumstances change, the bank would not hesitate to join the scheme.