Starting today, banks and building societies can borrow in the FLS at cheaper rates, for periods of up to four years.
The Scheme delivers 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 will, over time, cease to offer NLGS branded products.
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.
The Chancellor 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.”
Alex Gowar, director at leading peer-to-peer finance website RateSetter.com said:
“The Government should stop trying to squeeze the last drops out traditional banking and embrace new forms of lending if they want to make a lasting difference. Peer-to-peer finance platforms are already injecting safe and reliable funds into UK households and businesses. With increased Government support peer-to-peer could fill the credit gap left by banks while at the same time make life easier for UK savers left reeling by the Bank of England’s attempts to get the economy moving’.
John Cridland, CBI Director-General, said:
"Rising borrowing costs have held back the growth ambitions 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 Funding for Lending Scheme is likely to naturally replace the National Loan Guarantee Scheme over time because it is a bigger scheme that is open to a broader range of firms."
