The Bank of England and HM Treasury have announced changes to the terms of the Funding for Lending Scheme (FLS) extension to re-focus the incentives in the scheme towards supporting business lending in 2014.

The FLS extension will provide continued support for lending to businesses in 2014, with incentives in the scheme skewed heavily towards lending to small and medium-sized enterprises.

Lending to smaller businesses in 2014 will continue to be encouraged by allowing banks to draw £5 in the scheme for every £1 of net lending to SMEs. The fee for all drawings from the FLS extension will be set at 25 basis points, which is the lowest point of the previous fee scale. Taken together, these features provide certainty over the availability of cheap funding to support small business lending.

Commenting on the changes, the Chancellor of the Exchequer, George Osborne, said, “The Funding for Lending Scheme proved to be a successful tool in supporting the recovery. Now that the housing market is starting to pick up, it is right that we focus the scheme’s firepower on small businesses. Small firms are the lifeblood of our economy. That’s why we’re reforming the banks, introducing the employment allowance and now focussing the Funding for Lending Scheme to support them.”

Photo:  George Osbourne