The Confederation of British Industry (CBI) welcomed the official launch on 1 August of the UK government’s Funding for Lending Scheme (FLS), which was announced in June.
CBI director-general, John Cridland, 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.
“The FLS is likely to naturally replace the National Loan Guarantee Scheme [NLGS] over time because it is a bigger scheme that is open to a broader range of firms.” The CBI last month issued a report entitled ‘Financing for Growth’, which called for more action to improve the cost and availability of finance for businesses, following the launch of the NLGS in March 2012.
The £80bn FLS offers cut-price loans to banks and building societies, which are expected to make the money available through loans to small businesses and mortgages to homebuyers. According to the Treasury, banks currently offering NLGS loans are now likely “to opt to deliver credit easing to the whole economy through the FLS”.
The money will be lent by the Bank of England (BoE) for a period of up to four years at 0.25% a year below market rate, but banks or building societies whose lending declines between now and the end of 2013 will be charged more. The rate on the loan will rise by 0.25% for every 1% fall in lending to a maximum of 1.5%.
The BoE said the scheme aimed to “incentivise banks and building societies to boost their lending to UK households and non-financial companies.”
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