The Bank of England and HM Treasury have announced that the Funding for Lending Scheme (FLS) introduced in August 2012 is to be extended. They have said this is ‘in order to support the supply of credit to the UK economy’. The FLS was launched to encourage banks to lend more.
The extension has three main objectives:
- To give banks and building societies confidence that they will be able to access funding for lending until January 2015 (the FLS was originally planned to run until January 2014).
- To increase the incentive for banks to lend to SME’s in 2013 and 2014.
- To include lending involving certain non bank providers of credit such as finance lease and factoring corporations.
Since its launch in August the FLS has been criticised for failing to boost lending. The Bank of England announced on 19 April that lending to business in fact was down 4.4% on the same period a year ago.
Three specific changes to the FLS have since been announced:
- The scheme has been extended to January 2015.
- Lending to SME’s has been incentivised as it will allow banks to borrow an extra £5 from the FLS for every £1 they lend to an SME.
- Banks are also being encouraged to lend sooner so every £1 of net lending to SME’s during the remainder of 2013 will allow banks to borrow £10 in 2014.
Commentators are initially stating that the extension is positive, however there is still concern whether these measures will allow businesses to gain adequate access to finance.
If you have any queries on bank funding, please contact Carol Flockhart, Business Support Partner by email to firstname.lastname@example.org.