Bank of England extends credit support for small businesses

Anything that improves the prospects of entrepreneurs is good by us – so the news today that the Bank of England will be giving a two year extension to a scheme that encourages banks to lend more to small businesses is welcome news for startups across the country.

As we’ve covered  before, funding is a big obstacle for many entrepreneurs, with 50% of UK adults saying that lack of funding prevents them from making their business ideas reality. So while bank lending to small businesses is still subject to tight restrictions, schemes such as the FLS (Funding for Lending initiative) should improve access to finance for small businesses.

Banks have traditionally been wary of lending to startups due to the associated risk – but now the business landscape is changing, startups have never been more agile, innovative or vital to the economy. So as well as hopefully making it easier for businesses to get funding, schemes like this recognise the contribution of startups.

So, how does the scheme work? Each lender is granted allowances, which can be traded in at the Bank of England on cheaper terms than regular loans. In fact, recent data shows that there is currently spare capacity in this scheme, with £33.3bn of the allowances granted to lenders going unused. Thanks to the time extension, this credit now has a chance to be used. But should all startups be running to the bank?

“Anything that makes it easier for startups and small businesses to access finance is a good thing,” says startup expert Alexis Liming. “However, there are two key things that need to go side by side with this. First off, there needs to be a focus on responsible lending decisions - which means a willingness to engage with small businesses and understand what they are planning to do and why they need the cash, rather than a mountain of admin and machine-processing.

“Secondly, this access to finance needs to be combined with support once the finance has been provided,” continues Alexis. “ Independent voices of experience and expertise can help to guide startups and small businesses to success when confronted with something that was not in their ‘plan’.”

Even with this welcome measure, remember that bank loans won’t be for everyone – there are a whole wealth of options out there. Find out more about whether it’s the best option for you – and remember that at Virgin StartUp our low-interest business loans come with mentoring and support.

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