How is the Government encouraging enterprise finance?

Bank lending to businesses has shrunk by 17% over the past four years, in the months to May lending collapsed by £3 billion. Experts and politicians alike acknowledge that SMEs are the key to economic growth, they account for nearly half the UK’s GDP and employs 60% of its workforce.

This article will look at a number of schemes, that the Government has introduced to encourage business finance. They are the Funding for Lending Scheme (FLS), Enterprise Investment Scheme (EIS), Export Enterprise Finance Guarantee Scheme (ExEFG) and the Seed Enterprise Investment Scheme

It will be a few months before we can see the impact of these Government finance schemes. This is a similar case for the Funding for Lending scheme, the replacement of the disappointing National Loan Guarantee scheme. £80 billion of loans have been pledged for the FLS. The scheme will run for the next 18 months when it will then be assessed. Under the scheme for every £1 of additional lending made by a bank, it will be able to access an extra £1 of cheap funding from the FLS. Those banks that reduce lending will have to pay higher fees to use the scheme.

We at MarketInvoice think that the Government taking the initiative and an interest in helping enterprise finance is very commendable. The Funding for Lending Scheme is probably the best attempt so far to encourage banks to lend however there is no guarantee that the plans will address the core problem of companies’ reluctance to borrow in the face of a eurozone debt crisis, business confidence is another factor that needs to be considered. Naturally we are big believers in alternative finance, but until the banks stop putting up barriers and encouraging invoice factoring and other unimaginative methods of funding, the only other viable alternatives for SMEs are solutions like crowdfunding, peer-to-peer lending and invoice finance.

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