With Alt Lending Up, Bank of England Reports SME Lending Nosedive

The alternative lending market in the UK may be booming – a recent study found it to be worth four times as much as the rest of Europe’s combined – but for big banks, small business lending is taking a nosedive.

According to reports Thursday (Feb. 26), the Bank of England has revealed that its Funding for Lending Scheme, a program aimed at big banks’ boosting SME lending, has dropped by $1.2 billion in the fourth quarter. BoE added that small business lending as a whole in 2014 slowed down compared with 2013.

The Funding for Lending Scheme was launched in 2012 to encourage large financial institutions to increase small business lending. Big banks could access capital at cheap rates if they also boosted efforts to lend to UK businesses and households. In early 2014, the program was revised to focus more strongly on small business lending, reports say.

Last December, officials renewed the program for another year. According to BoE, the scheme is applicable until January 29, 2016.

Overall, the Bank of England noted that all lending operations to businesses in the fourth quarter – including large business financing – was down by more than $10.6 billion.

According to reports, the Bank of England did not elaborate on reasons why small business lending dropped so sharply in the quarter. Despite the rise of alternative lenders, recent data from Biz2Credit in its Small Business Lending Index found that, overall, big bank lending to small businesses was actually on the rise in January 2015. The research found that 21.3 percent of SME loan applications were approved by banks with more than $10 billion in assets.

The findings may correlate with the most recent Experian/Moody’s Analytics Small Business Credit Index, which found that small businesses are more consistently repaying their bills and reducing their risk with big banks.