Goldman Sachs – Bank support fails to help small business
The Bank of England has been urged to overhaul its misfiring scheme to boost small business lending as fears over a wave of insolvencies continue to grow.
Take-up of cheap loans provided to lenders under the Bank’s Term Funding Scheme, introduced last March, has been “well below” available levels and failed to boost lending to small firms, according to Goldman Sachs.
It said the scheme should be revamped at the Bank’s next policy meeting on Thursday after finding that higher usage of the Bank’s cheap funding did not lead to increased lending to small firms.
The Wall Street bank also highlighted several signs of “tighter credit availability” for small and medium-sized enterprises (SMEs) at the end of 2020.
Under the TFS, the Bank provides cheap four-year loans to lenders. Banks are initially allowed to access funds through the TFS equivalent to 10pc of their lending, with more available to those that increase the supply of credit, particularly to SMEs. However, Goldman found the combined take-up has been just 4pc, or £64bn, and there was no relationship between the biggest users of the TFS and SME lending.
Its economist Nikola Dacic argued the Bank should loosen the terms of the scheme further at the Monetary Policy Committee’s next meeting on Thursday, by increasing its duration or boosting incentives to lend.
The warning came as a new report by EY found that the number of companies at risk of insolvency has doubled in the last 12 months. Business closures have been limited by huge government support during the pandemic but EY warned to expect an “influx” of insolvencies from “spring onwards”.