Extension for Funding for Lending Scheme
THE Bank of England has announced plans to extend the Funding for Lending Scheme, which is designed to help businesses and households.
Due to end in January 2014, it will be extended for another year to 2015.
Banks will be given greater incentives to lend to small and medium-sized businesses, and creditors other than banks will be able to participate.
Since its launch in August, the scheme has been criticised for failing to boost lending. The scheme is aimed at encouraging banks to lend by offering them cheap loans on the condition they pass them on to customers.
Bank of England figures suggest banks took nearly £14bn from the FLS between August and December last year.
However, among participating banks, lending was actually lower in that six month period, than it was in the six months before the scheme was introduced.
According to the Treasury, new incentive measures are designed to encourage banks to lend more by allowing them to borrow an extra £5 from the FLS for every £1 they lend to a small or medium-sized enterprise (SME).
In an effort to get banks to lend sooner, they will be able to borrow £10 in 2014, when the scheme is extended, for every £1 they lend in 2013.
Matthew Fell, CBI Director for Competitive Markets, said: “Funding for Lending is already making a difference in the housing market and there are signs that it is starting to lower the cost of finance for businesses.
“The additional incentives for banks should accelerate activity in the small business financing market. But we need to be realistic – Funding for Lending is only one piece of the finance jigsaw. Boosting firms’ confidence by raising awareness of the various funding schemes available is critical.”
John Longworth, director general of the British Chambers of Commerce, said: “The extension and widening of the Funding for Lending scheme shows that the Chancellor and the Bank of England are listening hard, and acting to address continued business frustration around tight credit conditions.
“We are particularly encouraged by the fact that incentives for SME lending have been sharpened, and that the new-look FLS will cover sources of finance beyond the banks, including asset-based lenders and invoice discounters.”
