A FLAGSHIP lending initiative backed by the Bank of England and the Treasury was yesterday beefed up in a bid to boost small businesses and provide a tonic to the ailing UK economy.

The success of small and medium-sized enterprises (SMEs) is seen as key to pulling Britain out of the economic doldrums, but Bank of England governor Sir Mervyn King has acknowledged that the Funding for Lending Scheme (FLS), launched last year, had not helped the sector as much as larger firms and households.

Under the scheme, banks can access low-interest funding in return for lending to households and businesses. Now, they are being told that the amount of funding available will be increased up to 10-fold when based on lending to SMEs, defined as firms with turnover of less than £25million.

The FLS will also be expanded to include bank loans to finance houses and leasing corporations which provide small firms with working capital, and extended by a year until January 2015.

Suffolk Chamber of Commerce chief executive John Dugmore said the changes showed that the Chancellor and the Bank of England were listening.

“We are particularly encouraged by the fact that incentives for SME lending have been sharpened, and that the new-look FLS will cover sources of finance beyond the banks, including asset-based lenders and invoice discounters,” he said.

However, Mr Dugmore said the changes could, and should, go further.

“Were they to extend the backing of the FLS’s billions to the embryonic Business Bank, they would energise a new and crucial player in the lending market,” he added.