The Royal Bank of Scotland has announced it will use the Treasury's Funding For Lending scheme to boost its Manufacturing Fund.
The fund, which was originally launched in January 2010, offered manufacturers loans of between £250,000 and £25m at discounted rates and arrangement fees, with the option to defer capital payments and pay interest-only for up to three years.
And thanks to the additional funding resources made available by the Funding For Lending Scheme, RBS will now target medium sized businesses, typically with a turnover of £25m to £500m.
This market could add £20bn-£50bn to annual gross domestic product growth, according to the Confederation of British Industries.
The Treasury's Funding For Lending Scheme, run in partnership with the Bank of England, was set up in July this year to boost lending to households and businesses.
It works by allowing banks and building societies to borrow from the Bank of England for up to four years, with banks providing assets such as mortgage loans to the Bank of England as security.
When the initiative was set up, banks were told they would be able to take advantage of the offer between 1 August 2012 and 31 January 2014.
RBS's Manufacturing Fund has already helped several businesses - a number of press releases were issued soon after its establishment in 2010 detailing the businesses which had benefited, including Knowsley-based food service manufacturer Counterline.
The RBS fund will continue to offer UK manufacturers fixed and variable rate loans of between £250,000 and £25m (with interest rates and arrangement fees for each new tranche of lending), and will still be able to defer any capital repayments for two years.
However, the fixed rates for three and five year loans are now lower as a result of the Treasury/BoE involvement; 2.75% and 3.2%, down from previous rates of 3.45% and 4.25%).
And for the first time manufacturers will also be able to access variable rate loans in the fund, with a published interest rate margin of 2% for three-years and for longer loans 2.25% plus three-month LIBOR.
All loan options carry an arrangement fee of 0.5% flat - another discount as these typically exceed 1%.
Peter Russell, head of manufacturing at RBS said in a statement: "Mid-sized manufacturers are key in helping the UK grow and export out of recession.
"Through Funding for Lending, these are the most competitive terms that we have been able to offer manufacturers for several years. We hope it will be a catalyst for investment.”
The news was welcomed by Matthew Fell, director for competitive markets at the CBI.
He added: "Support for medium-sized companies continues to be an important issue as they represent 30% of the UK's manufacturing base. We believe that, if their potential is fully unlocked, these companies could help to rebalance the economy."
While the development is good news for medium sized businesses, small companies are still finding it difficult to obtain funding, according to a report from independent research consultancy BDRC.
Its well-regarded SME Finance Monitor Report found only 43% of small and medium-sized enterprises (SMEs) used external finance compared with 51% three months earlier.
In addition, a third of businesses that applied for loans, and a fifth of those that applied for overdrafts, were turned down.
Last week, George Osborne announced his intention to launch a small business bank to make it easier for growing companies to gain access to multi-billion pounds worth of government funding.
While experts recognise it won't solve small companies' funding problems overnight, it is hoped that the move will be a sign of government support for the sector and a much needed confidence boost at a difficult time.
Elsewhere, a report in the Financial Times suggested the Funding For Lending Scheme had a positive effect on banks, reducing lending rates by 0.5%, but that there was little evidence of banks passing on lower rates to borrowers.
As banks continue to shore up their own balance sheets, some analysts believe any cost savings will simply be kept by the banks for the time being.
“Funding for lending will help banks’ margins, but it won’t move the needle on lending volumes unless regulators ease capital constraints on banks,” Alastair Ryan, European banks analyst at UBS, told the FT.