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April 26, 2013

Funding for Lending gets new SME focus

The Bank of England and HM Treasury have announced an extension to the Funding for Lending Scheme, (FLS) introducing changes that are specifically intended to boost lending to small and medium-sized businesses.

The FLS scheme will be extended for one year, so drawings will be permitted until the end of January 2015. In addition, incentives to boost net lending will be heavily skewed towards SMEs. New allowances for drawings in the extension period will be calculated on the basis of banks' lending behaviour. For every £1 of net lending to SMEs in 2014, banks will be able to draw £5 from the scheme in the extension period.

To encourage banks to lend to SMEs sooner rather than later, every £1 of net lending to SMEs during the remainder of 2013 will be worth £10 of initial borrowing allowance in 2014. Net lending to other sectors during the remainder of 2013 will count towards the initial borrowing allowance for 2014 pound for pound.

The Funding for Lending scheme will also be expanded to count lending by banking groups involving financial leasing corporations and factoring corporations as well as certain mortgage and housing credit corporations.

George Osborne, chancellor of the exchequer, said: "This innovative extension will now do even more for small and medium sized businesses so that they can play their full part in creating new jobs."

However, the announcement has come just after more disappointing Bank of England lending figures were released.

Paul Aitken, CEO of Borro, said: "It will be no surprise to the nation's small businesses, who continue to suffer, that lending fell by £5 billion in the three months leading up to February in 2013. Today's announcement that the Chancellor is to extend the funding for lending scheme to small businesses comes as little respite."

Alex Jackman, head of policy at the Forum of Private Business (FPB), said: "Many will see this as the last throw of the dice for FLS to maintain confidence in the SME lending market so government really needs to make sure it is working for both businesses and banks, otherwise it will be small firms that yet again suffer. You can't keep fine tuning something and continue to get it wrong."