Britain overhauls 'funding for lending' scheme

Britain on Wednesday said it was overhauling and extending its "funding for lending" scheme (FLS) in an fresh attempt to boost the flow of credit from banks to struggling small businesses and to aid economic growth.

The announcement comes on the eve of official data revealing whether Britain has fallen into a fresh recession.

The British government had launched the FLS programme last year, as it sought to lift lending to households and businesses and ward off a tightening credit squeeze amid the eurozone debt crisis.

The Bank of England and the Treasury said in a statement on Wednesday that the FLS will now make central bank funds available for an extra year, until January 2015.

They said the scheme had helped boost the home loans sector but had thus far failed to reach credit-starved small businesses.

Under the revamped plan, commercial banks will be encouraged to lend more cash to small and medium sized enterprises (SMEs).

In a bid to speed up credit flows, for every £1 of net lending to SMEs in 2014, banks will be able to draw down £5.

In addition, the FLS initiative will be opened up to non-bank lenders, such as finance houses and leasing firms.

And the Treasury added that there would continue to be "no upper limit" to the scheme.

"The Funding for Lending Scheme has already reduced the costs of household mortgages and loans for businesses," said finance minister George Osborne.

"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 job."