In an attempt to kick-start growth amongst SMEs, the Funding for Lending Scheme (FLS) is set to be extended to asset based lenders, invoice finance houses and leasing firms.

With Britain dangerously close to a triple dip recession and the IMF criticising the current austerity measures, Chancellor George Osborne is planning to boost the economy with £20 billion of extra loans for small firms.

High street banks are to be given added incentives to extend credit to SMEs in an expansion to the scheme, due in the next fortnight.

Discussions between the Treasury and the Bank have concluded that high street lenders need further inducement to pass on the benefits of subsidised lending to companies.

The Treasury and the Bank have been working on plans to extend the £80 billion scheme to asset based lenders, invoice finance houses and leasing firms in an attempt to ease the credit crunch still being felt by small business.

Specialist finance houses, that provide around £20 billion of vital working capital to small companies, are to be included in the Bank’s flagship FLS scheme, which is also expected to be extended by a year to 2015.

Asset finance is the lifeblood of smaller companies as it is their main alternative to bank debt and provides cash flow for working capital, by allowing them to borrow against invoices and machinery.

The move comes after ratings agency Fitch downgraded Britain’s credit rating to AA+ last week and ahead of the Office of National Statistics’ growth data due to be released on Thursday, which is expected to show no or very weak growth in the first three months of the year.

There is much scepticism over the effectiveness of the FLS scheme, since it was launched last August, which offers subsidised credit to high street banks, provided they passed on the benefits to households and businesses.

Mr Osborne first announced details of the £80 billion cheap FLS, which provides credit from the Bank of England, last August and hinted in his Budget speech that it would be extended.

Figures to date are showing that there has been a slight pick-up in lending for mortgages but no increase in business lending. However, the Bank of England’s minutes of the April meeting of its nine-strong monetary policy committee (MPC), released last week, signalled support for an expansion of the scheme.

Vince Cable and Osborne have previously stated that the Bank of England was reviewing ways in which the FLS could be adapted to deal with the needs of SMEs.

Speaking in Washington last week, Mr Osborne said there would be an announcement on the FLS “fairly shortly”. He added: “It has been a success and has underpinned credit in the last year and has contributed to a reduction in bank funding costs.”

The new arrangements for asset based lenders are unclear but are likely to differ from the 2012 deal for banks and building societies. Under the current scheme, lenders are eligible for taxpayer-backed funding subsidies on five per cent of their UK loan book.

The idea was that the savings would be passed on to borrowers, providing households and businesses an extra stimulus to help the recovery. The arrangements for non-banks are likely to be on a larger proportion of the total £20 billion of financing.

Under the original arrangement unveiled last August, the FLS was due to end in January 2014. An announcement is expected this week.