The bank wants the scheme to continue helping small and medium sized enterprises gain cheap funding in 2015.
The FLS has focused primarily on business lending since November 2013, while the scheme was originally due to draw to a close in January 2015.
George Osborne, Chancellor of the Exchequer, said: “The government’s long-term economic plan is working with the Funding for Lending Scheme playing a vital role in supporting the recovery.
“Now that credit conditions for households and large businesses have improved, it is right that we focus the scheme’s firepower on small businesses, which are the lifeblood of our economy.
“That’s also why we’ve reformed the banks, introduced the British Business Bank and are now focusing the Funding for Lending Scheme on supporting them.”
Current participants in the FLS extension will remain part of the scheme unless they opt out, while they will retain borrowing allowances earned by lending from 2013 Q2 to 2014 Q4.
Mark Carney, Governor of the Bank of England, added: “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.”
