Fumbling for Lending

Of all the confusing statistics flying around recently this is one of the most troubling (here clearly described in the FT).

[blockquote]“After falling in February and March, net lending to private non-financial companies dropped another £3bn in April, pushing the annual decline back down to 4% after recovering earlier this year.”[/blockquote]

The statistics also reveal that repayment of loans to businesses have continued to outstrip new lending.

There is clearly some kind of black hole into which the Government’s well-intentioned Funding for Lending Scheme (FLS) is quietly disappearing. With the announcement that this under-performing initiative is to be extended until the start of 2015, one is forced to ask, why?

The provision of funds to the banks with an unholy quid pro quo, whereby the banks can borrow increasing amounts of funds if they lend to SMEs, is clearly not tasty enough for the nation’s lenders.

In fact, from what I can see, the only logic behind the extension of the scheme is to reassure bankers that there is not going to be an uptick in their borrowing costs anytime soon.

With base rates held at artificially low levels and the supposed flood of cheap money through the Government schemes such as FLS, one might expect the newspapers to be full of stories of business owners having to build new storage facilities to keep all the cash being thrown at them.

And yet this seems not to be the case.

We are, of course, operating in the most unreal of financial environments ever seen in this country. A great economic experiment to counter the effects of the Great Recession. Only in Japan and the United States have the authorities sought to suspend reality with greater vigour.

We all know how vital business confidence is to the overall economy; how business confidence is the un-seen driver of growth through investment. How easy is it for any business owner to be confident under the current circumstances?

And who can blame them?