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Funding scheme extension benefits SMEs: Bank

Funding scheme extension benefits SMEs: Bank

The Funding for Lending extension, as announced in December, has continued to benefit small and medium-sized enterprises with net lending in the first three months of this year above 2014’s quarterly average, according to the Bank of England.

Net lending by the FLS extension participants to SMEs was £600m in the first quarter of 2015, compared with £800m in the last three months of 2014. The quarterly average lent last year was £500m, the Bank said.

“A number of institutions expanded their lending in Q1 2015 and further borrowing allowances of £4.9bn have been generated, spread across 16 participants,” the statement said.

Last December, the Treasury extended the scheme for another year, meaning the drawdown window will remain open until 29 January 2016. The extension was an attempt to boost the credit supply to small and medium-sized businesses, in a move some predict will see another £1bn made available to smaller businesses struggling to find financing.

The scheme was launched in mid-2012, helping to improve credit conditions for households and businesses, with the incentives re-focussed towards business lending in November 2013.

The move should provide lenders with continued certainty over the availability of cheap funding to support lending to small and medium-sized enterprises during 2015, “even in the event of stress” in bank funding markets.

During the first three months of the year the number of groups participating in the Funding for Lending scheme extension was 34 and of these 10 participants made drawdowns of £3.1bn in total. Participants also repaid £1.5bn, taking total outstanding drawings to £57.3bn.

Aggregate net lending to SMEs, including lending by banks and building societies not participating in the FLS, was also “positive” in the first quarter, with the bank stating this is part of a broader improvement in lending to all non-financial businesses,

Over the past few years, credit conditions have improved for SMEs and this has continued into this year, the bank added.

The statement concluded: “The improvement in corporate credit conditions in part reflects the significant fall in bank funding costs that has occurred since the launch of the FLS.

“Over the first quarter of 2015, the level of funding costs remained low. The FLS extension will continue to support lending to SMEs in 2015.”

donia.o’loughlin@ft.com