The extension will provide lenders with continued certainty over the availability of cheap funding to support lending to small and medium-sized enterprises (SMEs) during 2015, even in the event of stress in bank funding markets, the government said.
The FLS, launched in 2012, was initially designed to improve credit conditions for households before incentives were re-focussed towards SMEs a year ago.
The drawdown window for the FLS extension will now remain open until 29 January 2016. Current participants in the FLS extension will remain part of the scheme unless they choose to opt out.
BoE governor Mark Carney said: “By providing a backstop for funding for banks, the FLS has supported access to credit across the economy during an exceptional period. As the banking system has been returned to health, the need for that backstop has been reduced.
“The scheme is not permanent so, as access to credit has returned to the mortgage market and large corporations, the scheme has been tapered appropriately. The extension… concentrates the FLS on the one area where support remains warranted: the supply of credit to SMEs.”
Chancellor George Osborne added: “The government’s long-term economic plan is working with the Funding for Lending Scheme playing a vital role in supporting the recovery.
“Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy.”