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Funding for Lending Scheme extended for SMEs

The Funding for Lending Scheme (FLS), designed to boost lending to businesses and households, is to be extended until January 2015, the Bank of England has announced.

The £80 billion scheme - which offers incentives to banks to increase the amount they lend - will run for another year, with greater emphasis on lending towards small and medium sized enterprises (SMEs).

Banks will also be given greater allowances to incentivise lending, while other banks and institutions such as creditors will also be eligible to join the scheme.

Announcing the extension, the Bank said there had been more lending than there would have been without the scheme since its launch in August last year. "But the improvement in credit conditions since summer 2012 has been less marked for small and medium sized enterprises (SMEs) than for larger businesses and households," it said.

Every £1 of lending to SMEs in 2014 will enable banks to draw a further £5 from the scheme during the extension period. In a bid to encourage immediate lending, every £1 lent to SMEs during the remainder of 2013 will result in institutions being able to borrow £10 in 2014.

The move has been widely expected since it was announced in the Chancellor's March Budget. It follows criticism that the scheme has failed to increase the supply of finance, particularly to small businesses, as intended.

Key facts about the FLS:

  • The scheme offers incentives to institutions that increase the amount they lend
  • The scheme will be extended by one year until January 2015
  • The incentives will now be 'heavily skewed' towards SMEs
  • The type of eligible institutions will be extended to include certain creditors
  • Every £1 lent to SMEs in 2014 will enable banks to draw a further £5 from the scheme
  • Every £1 lent to SMEs for the remainder of 2013 will enable banks to draw £10 from the scheme in 2014.

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