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Funding for Lending extended by further two years

The Funding for Lending Scheme is to be extended for another two years, following an announcement by the Bank of England and HM Treasury.

Launched in 2012, the Funding for Lending Scheme (FLS) has been redefined on numerous occasions; most recently it refocused towards lending for the UK’s small and medium-sized enterprises (SMEs).

This latest extension promises to provide additional support for SMEs’ credit conditions; but it’s still almost certain to be phased out in 2018 with borrowing allowances expected to reduce between now and then so as not to hinder economic recovery.

According to the Bank of England, lending volumes to SMEs increased by £2.1bn this year, while net lending to SMEs by FLS participants was positive in the first half of the year. Nevertheless, it warns credit conditions for the small business community remain much tighter than for larger corporations.

Mark Carney, governor, Bank of England, said: “As conditions have normalised for particular sectors over the life of the FLS, we have consistently reduced the scope of this temporary scheme and focused support where it is needed most.

“The announcement today continues that tapering, supporting continued improvement in SME credit conditions as the economic recovery takes hold, while gradually withdrawing that support over the next two years.”

Chancellor, George Osborne added: “I am pleased to say that we are extending the scheme until 2018, supporting more loans.

“Given the improvement we’ve seen in credit conditions for households and large businesses, as our long-term economic plan moves from rescue to rebuild it is right that we continue to focus the scheme’s firepower on the small businesses that are the lifeblood of the economy.”

There is a feeling within the UK small business community that despite plans to phase out FLS within the next two years, the improvements to the scheme will help both fledgling lenders and SMEs better compete with the bigger, more established competition.

John Allan, national chairman, Federation of Small Businesses (FSB), said: “Providing small lenders and newer entrants to the market with greater access to the scheme is a sensible move.

“It should help them compete with the bigger banks and over time, provide businesses with a wider range of finance options.”

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