The Bank of England's scheme to improve credit to small and medium-sized businesses (SMEs) failed to prevent further declines in lending to the UK's growth engine during the second quarter. However the British Banking Association (BBA) also published data on Thursday, which indicated a pickup in borrowing by small and medium sized businesses, with the highest quarterly amount of new SME lending since 2011.Fresh data from the Bank on its Funding for Lending (FLS) scheme showed a £435m fall in net lending to £4.8bn between April and June, coming after the first quarter's £719m fall. The data revealed that total lending under the scheme fell by £3.9bn in the quarter, after a £2.7bn fall in the first. State-owned Lloyds Banking Group overall lending contracted the most in the second quarter, although it extended its lending to small businesses. Lloyds defended its overall reduction in total group lending as being the result of "a fall in borrowing by large and multi-national companies, the nature of which is short term and increasingly replaced with funding from the bond markets and repayments from cash reserves".It added that its shift to "becoming a UK focused retail and commercial bank" meant that it was running off certain non-core lending. "This is a strategy that over time will allow us to lend even more to our SME customers."The scheme, which was launched by the Bank and Treasury in 2012 to spur lending by offering banks cheap credit, has seen banks draw down a total of £45.7bn so far.The BBA's data showed £7.4bn of new SME borrowing was approved during the quarter, a 16% increase year-on-year and the highest quarterly amount since 2011. Net lending was up slightly overall by £100m for small and medium-sized businesses.The increase in borrowing was broadly-based across industry sectors and geographical regions, the organisation said. BBA director Irene Graham said: "BBA figures out today show that we are starting to see a pickup in borrowing by small and medium sized businesses. "It is also encouraging to see that the Funding for Lending Scheme is continuing to be used to help businesses. Companies are also increasing their cash reserves, which suggests that the sector is in a healthy position."SME deposit levels were up 9% year-on-year and now exceed borrowing by more than £43bn. Analyst Laith Khalaf at Hargreaves Lansdown said the effects of the FLS were difficult to quantify. "The Bank of England will maintain that the scheme will take some time to have full effect, and we don't know what business lending would be shrinking by if the scheme were not in place," he said. "Lending demand may also be part of the problem. Perhaps so, but meantime savers are bearing the brunt of the pain in their deposit accounts and cash ISAs."OH