The government’s Funding for Lending Scheme (FLS) draw-down window is now open for the next 18 months. Starting on August 1, banks and building societies can borrow in the FLS at cheaper rates, for periods of up to four years.
The Scheme has been launched to deliver credit easing to the whole economy, and has strong incentives for banks and building societies to increase lending to UK households and businesses. Those that lend more, can borrow more in the FLS, and can do so at lower cost than those that scale back lending.
The FLS is designed to encourage broad participation so that as many institutions as possible have incentives to lend more to the UK real economy than they otherwise would have.
It is expected that banks currently offering loans through the National Loan Guarantee Scheme (NLGS) will, over time, cease to offer NLGS branded products.
The Treasury said that the NLGS has been successful in providing reduced rate loans for smaller businesses. However, changes in market conditions since the introduction of the NLGS means it is now less economical for banks to raise unsecured funding.
In practice, this means that banks who are currently offering NLGS loans will likely opt to deliver credit easing to the whole economy through the FLS going forward. The NLGS will remain available to banks if they wish to use it in the future, or if market conditions change.
Chancellor George Osborne said: “The NLGS has made a real difference, with over 16,000 cheaper loans worth over £2.5bn 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.”