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Funding For Lending Scheme Given Makeover

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The Funding for Lending Scheme (FLS) to boost the economy has been extended and reworked in an attempt to help get more credit to small firms.

Under the reforms announced by the Treasury and Bank of England the country's banks are being offered an up to ten-fold increase in the low-interest funding they can access in return for extending loans to smaller businesses.

The FLS, they said, was also being opened up to non-bank lenders such as invoice finance houses and leasing firms that provide around £20bn of working capital to small firms, and will be extended for a year to January 2015.

The scheme was launched last summer to offer banks and building societies funding at low interest rates on condition they are passed on to households and businesses.

But while it has been helping the home loans sector, it has failed to make an impact on small businesses which have complained of remaining starved of credit.

Bank figures last week showed net lending to companies had slumped by £4.8bn in the three months to February.

Under the new deal, every pound of additional lending to small and medium-sized enterprises (SMEs) next year will allow the lender to access £5 of discounted funding from the Bank. The ratio in the rest of the scheme is 1:1.

In a bid to speed up the flow of much-needed credit into the system, each pound lent to SMEs for the rest of this year will allow a draw-down of 10 times that in 2014.

The Treasury said there was "no upper limit to the scheme" and the move was hailed by the Chancellor George Osborne, who said: "This is a big boost for the small and medium-sized businesses that are at the heart of the British economy.

"The Funding for Lending Scheme has already reduced the costs of household mortgages and loans for businesses. 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."

Source: SKY News

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