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Bank lending scheme goes live

An £80 million lending scheme that should give businesses and homeowners access to cheaper loans has been launched.

The Funding for Lending Scheme (FLS), announced by the Bank of England and HM Treasury last month, aims to reduce the price at which banks and building societies are able to fund themselves.

Access to the flow of credit through the banking system has been of real concern to start-ups and firms looking to access finance.

The Confederation of British Industry (CBI) welcomed the scheme.

Under it, banks will be encouraged to make more money available by the Bank of England lending money at below-market rates to them.

The FLS will enable participating banks and building societies to borrow up to five per cent of their stock of existing lending to the real economy, plus any net expansion of lending over the next 18 months.

George Osborne, the chancellor, said the scheme would make loans cheaper and more easily available, providing welcome support to businesses that want to grow.

It is expected that banks currently offering loans through the National Loan Guarantee Scheme (NLGS) will start to phase this out.

The government said NLGS has been successful in providing reduced rate loans for smaller businesses but changes in market conditions since the introduction of the scheme means it is now less economical for banks to raise unsecured funding.

Mr Osborne said: "The NLGS has made a real difference, with over 16,000 cheaper loans worth over £2.5 billion already offered to businesses across the UK. In many cases, the money saved has meant an extra person employed who otherwise still might be looking for work.

"The more generous FLS has officially opened for business and will in time effectively take over from the NLGS, delivering credit easing to the whole economy."

John Cridland, CBI director general, said: "Rising borrowing costs have held back the growth ambition of many small and medium-sized firms.

"This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more."

But Adam Marshall from the British Chambers of Commerce said companies would be asking a number of "big questions" about the new lending initiative.

Speaking on BBC Radio 5 live's Wake Up to Money business programme, he said: "I think there are three big questions businesses will be asking. Will it get through? Who will it help? Is it enough?

"I think all of them are still open questions especially as the first credit easing scheme seemed to stick to the ribs of the financial institutions."

Posted by Jack Painter