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Boost for SME's as Bank of England says Coronavirus Lending Scheme to Come Online Earlier than Expected

Bank of England

Image © lazyllama, Adobe Stock

The Bank of England has revealed that its flagship lending scheme aimed at supporting UK Small and Medium Enterprises through the coronavirus crisis will be made available from April 15, which is earlier than anticipated.

The Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) is one of the initiatives announced by the Bank of England and the Treasury to support households and businesses during the 'coronacrisis'.

The TFSME allows lenders to access four-year funding at rates very close to Bank Rate, which currently stands at 0.1%.

The scheme is designed to incentivise lenders to provide credit to businesses and households to see them through the current period of economic disruption and uncertainty caused by the coronavirus pandemic.

In a statement, the Bank of Englands says that making TFSME funding available as soon as possible should further support SMEs' ability to access funding from the banking system, helping them to continue to pay wages and bills.

The aims of the TFSME are to:

  1. help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that businesses and households benefit from the MPC’s actions;
  2. provide participants with a cost-effective source of funding to support additional lending to the real economy, providing insurance against adverse conditions in bank funding markets;
  3. incentivise banks to provide credit to businesses and households to bridge through a period of economic disruption
  4. provide additional incentives for banks to support lending to SMEs that typically bear the brunt of contractions in the supply of credit during periods of heightened risk aversion and economic downturns.

The TFSME initiative is part of the Bank of England's efforts to support the economy as it slips into a deep recession owing to the unprecedented stoppage in both international and domestic economic activity.

"We are forecasting a 15% q/q drop in GDP in Q2. That would be a larger fall in output than in the financial crisis or the Great Depression. Our base case is that the recession won’t be as protracted as in either of those episodes. But recent evidence that unemployment is shooting up despite the government’s support package raises the risk that the recovery takes longer than we expect," says Andrew Wishart, UK Economist at Capital Economics.

The Bank has now cut rates to a record low of 0.10% and announced a new quantitative easing programme, that will see it buy up to £200BN worth of UK government bond and investment-grade corporate bonds. The purchases are financed by the issuance of central bank reserves and will take the total stock of these purchases to £645 billion.