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LONDON, Dec 2 (Reuters) - Britain's government will offer bankscheap credit for another year, but only if they use it tosupport small businesses, finance minister George Osborne saidon Tuesday ahead of a major budget update.
Osborne intends to use Wednesday's fiscal update -- thepenultimate one before May's national election -- to extend theFunding for Lending Scheme (FLS), which was due to end inJanuary, and announce other measures to support business.
Osborne launched the FLS with help from the Bank of Englandin July 2012, when banks were struggling to get access to cheapfinance due to the euro zone debt crisis.
So far it has failed to increase net lending to smallbusinesses, despite lenders drawing nearly 48 billion pounds($75 billion) from the scheme.
Banks were initially able to use the FLS to boost mortgagelending -- something which helped revive activity in Britain'shousing market -- but since the start of this year they havebeen required to focus on businesses alone.
On Wednesday its scope will be narrowed further to focusonly on small firms, as larger companies have little difficultyraising finance via bond and share sales.
"Now that credit conditions for households and largebusinesses have improved, it is right that we focus the scheme'sfirepower on small businesses, which are the lifeblood of oureconomy," Osborne said in a statement provided by his office.
Figures from the BoE last week showed that lenders using thescheme cut net credit to small businesses by 128 million poundsin the three months to September -- though this was the smallestreduction this year or for much of 2013.
Banks argue that small firms are often reluctant to borrow,and prefer to pay down their debts after bruising experiencesduring the 2008-09 financial crisis.
Britain's finance ministry said gross lending to smallbusinesses had risen by 20 percent in the year to October.
Lloyds Banking Group, which is partly state-owned,has been the biggest user of the FLS in its latest form, taking4.0 billion pounds of funds in the three months to September.Santander accessed 1.3 billion pounds.
Osborne also plans to announce more funding for the BritishBusiness Bank, a public body which offers finance to firms,usually in partnership with private financial institutions.
Some 400 million pounds will be available for the bank'sventure capital scheme, and it will also be able to guarantee afurther 500 million pounds of loans. (1 US dollar = 0.6397 British pound) (Reporting by David Milliken, editing by William Schomberg)
