UK businesses starting to reap the benefits of cheaper lending

Two new announcements have been made this week which will be of interest to many small and medium sized businesses in the UK.

The first piece of news is that the government are to inject a further £250m to help small and medium sized businesses, through the British Business Bank, and this is in addition to the £1bn from last year.

So what is the British Business Bank?

It was launched earlier this year with the plan that it should be fully operational by next summer. It is not a new bank which we will see on the high street of our towns and cities, neither will it lend directly to businesses.

Rather it will be the umbrella for all the government’s business finance and support schemes, meaning that because everything will be brought together in one place, it should be both easier and cheaper for businesses to access finance, through their own bank.

Plus, of course, the government are committing sizeable sums of taxpayers cash to make it work.

The second relates to the government’s Funding for Lending Scheme which has been incredibly successful. Under the Scheme small and medium sized businesses can borrow money at a cheaper rate than would have otherwise been available, and since it was launched in July last year, over £23bn has been taken up, almost £6bn of this being in the quarter to the end of September.

Even businesses which don’t need any new borrowing are able to benefit from the lower interest rates which this scheme provides if they wish to change the terms of their existing borrowing, eg by changing the term of the loan.

However the government have made it clear from the start that cheap borrowing from the Bank of England is not to be seen as a permanent arrangement for the banks, and this week, as mortgage lending has been increasing, and with concerns being raised about the economy overheating, have announced that individuals can no longer benefit from the scheme and it is to be restricted to businesses. After what seems like a very long time in the doldrums, the government have gone from being harangued at every turn about the recession (whether that be single, double or even triple dip!) to concerns about the economy growing too quickly, but today, British businesses have every reason for optimism, and with an election now just 18 months away, the government will certainly be doing all they can to ensure that this continues.