The Bank of England and the Treasury have announced a one-year extension to the Funding for Lending Scheme (FLS).

This extension will support lending to small and medium-sized enterprises (SMEs) during 2015.

The drawdown window for the FLS extension will remain open until 29 January 2016. Current participants in the FLS extension will remain part of the scheme unless they choose to opt out, and they will retain borrowing allowances earned by lending from 2013 Q2 to 2014 Q4.

Participants will be able to earn further allowances by lending to SMEs in 2015, with such lending strongly incentivised by allowing participants to draw £5 in the scheme for every £1 of net lending to SMEs. Net lending to financial leasing corporations and factoring corporations – which can be important sources of finance for some SMEs – will continue to count towards allowances generated in 2015, pound for pound.

All other terms of the FLS extension remain unchanged, with drawings continuing to be for a term of four years and attracting a fee of 25 basis points.

Mark Carney, governor of the Bank of England 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 announced today concentrates the FLS on the one area where support remains warranted: the supply of credit to SMEs.”