UPDATE 1-UK leasing firms in government talks over FLS credit scheme

* UK Finance & Leasing Association says in talks on FLS

* FLS currently open only to banks and building societies

* Osborne plans to announce FLS changes "fairly shortly"

By David Milliken

LONDON, April 22 (Reuters) - British leasing companies arein talks with the government and the Bank of England aboutextending a flagship government credit scheme to enable thefirms to offer more finance, a trade body said on Monday.

Britain launched the Funding for Lending Scheme in August inorder to boost investment in the country's stagnant economy. Thescheme offers banks cheap credit if they increase lending tohouseholds and businesses, but so far the benefits have gonemainly to banks and home-buyers rather than small businesses.

On Friday finance minister George Osborne told reporters inWashington that he would announce changes to the scheme "fairlyshortly", leading to media speculation about what he wasplanning.

Osborne is under pressure to find ways to boost the economybefore a visit next month from the International Monetary Fund,which is close to recommending that he scale back his austerityprogramme in order to support growth.

One option would be for the FLS to be extended to cover allleasing companies - also known as asset finance firms - whichrent assets such as machinery to companies that cannot affordthem outright.

On Monday the industry's trade body, the Finance & LeasingAssociation (FLA), confirmed that it was in talks with thegovernment.

"The FLA is in on-going discussions with the government andBank of England about the operation of the Funding for LendingScheme in the business equipment finance market," Julian Rose,head of asset finance at the body, told Reuters.

"We look forward to seeing the government's proposals whenthey are published," he added.

Spokeswomen for the Bank of England and the finance ministrydeclined to comment on Monday about the details of any possibleextension to the scheme.

The FLA's members include subsidiaries of banks such asBarclays, BNP Paribas and Lloyds aswell as financing units of industrial firms such as Siemens and General Electric.

Excluding high-value items such as ships and planes, the FLAsaid that the outstanding value of leased goods rose by 2percent in 2012 to 45 billion pounds ($69 billion).

More than 90 percent of that was leased to small ormedium-sized companies with 250 or fewer employees and annualturnover below 50 million euros ($65 million), it estimated.