Recommendation 6

The Scheme has distorted the Small and Medium Enterprise (SME) lending market in favour of the largest UK banks, which goes against the Bank’s objective of creating a diverse finance market for SMEs. The Scheme’s low interest rate made it uneconomical for smaller or alternative lenders to participate to the same extent as larger lenders. This meant that some smaller lenders did not take part in the Scheme and larger lenders, who traditionally are less active in the SME lending market, lent 8 Bounce Back Loans Scheme: Follow-up relatively more. This resulted in the largest UK banks taking a 90% share in the Scheme’s lending to SMEs, distorting competition in the SME lending market as the Department and Bank expected at scheme launch. While we are encouraged to hear that the Department believes diversity is returning to the lending market, we remain concerned about its ability to identify and address any unintended or unforeseen consequences and the longer-term impact of the Scheme on the lending market. Recommendation: The Bank should develop a strategy to mitigate the negative impact of the Scheme on the SME lending market and publish its findings in its next Small Business Finance Market report. The Department should, alongside its Treasury Minute response, identify the unintended consequences of the scheme and what impact these have had.