The Bank of England has extended the Funding for Lending Scheme for small and medium-sized businesses by a year in a bid to boost the flow of credit to the economy.
The Treasury says the scheme, which was launched in August 2012 to encourage banks and building societies to lend more, will remain open until 29 January 2016. It was due to close in January next year.
Under the FLS, which was closed to mortgages in January this year, lenders can draw £5 from the scheme for every £1 of net lending to SMEs.
Bank of England Governor Mark Carney says: “By providing a backstop for funding for banks, the FLS has supported access to credit across the economy during an exceptional period.
“As the banking system has been returned to health, the need for that backstop has been reduced. The scheme is not permanent so, as access to credit has returned to the mortgage market and large corporations, the scheme has been tapered appropriately.
“The extension announced today concentrates the FLS on the one area where support remains warranted: the supply of credit to SMEs.”
Chancellor George Osborne says: “Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy.
“That’s also why we’ve reformed the banks, introduced the British Business Bank and are now focussing the Funding for Lending Scheme on supporting them.”