After a long wait the Funding for Lending Scheme (FLS) has finally been launched in a bid to revive our struggling economy.
The funding for lending scheme has been created due to the fact that there is a lack of credit which is damaging businesses as well as costing jobs. An important goal for the government is to help this problem and diminish some of the concerns that the economy has over business lending.
The funding for lending scheme has been created to take advantage of the very low borrowing rate that the UK is experiencing. The idea is that the scheme will mean banks can access the wholesale funding at rates which are marked considerably below the natural market rate. However, gaining access to the scheme will be judged on the performance of the banks. The banks need to prove that they are sustaining or expanding their lending to businesses throughout the UK.
The scheme has been much anticipated but some people do not believe that it will work. Mervyn King commented that the scheme poses a big challenge because of the macro economic challenge. This basically refers to the Eurozone crisis, which continues to be a burden on the confidence of banks throughout the UK. Consequently, conditions of the European economy overall will affect whether the funding for lending scheme will actually be a success or not.
Businesses are finding it a struggle if banks do not lend money to them. Small businesses in particular need vital funds to help them lay the groundwork for their business and expand in the future. They need these vital funds to help with the establishment plans as well as marketing costs, setting up a website, training new staff or even renting an outlet.
Without this vital funding, it can be difficult to prove a healthy cash flow and funding key business goals. Banks have been less inclined to lend to small businesses because of their low credit history, which cannot be helped for the small business. This means many start-up businesses have struggled to survive during the recession and many have had to close down completely. It is not just small businesses that are struggling during the UK economy difficulties, as larger businesses have also gone bust and face difficulty, too.