Reports have emerged that the chancellor will announce an extension to the Bank of England (BoE) and Treasury’s £80bn joint funding scheme in the coming weeks ahead of a May meeting with the International Monetary Fund, in which it is expected that he will be urged to scale back Britain’s strict austerity measures.

The FLS, which was launched in August last year, aimed to improved access to finance for small businesses and householders by offering reduced loan rates to banks as an incentive for them to increase their lending levels.

However the initiative has come under fire with BoE figures released last week revealing that bank lending actually fell by £4.8bn between December 2012 and February this year, equalling a 4.4% year-on-year decline.

Critics have also accused the government of using it simply to support mortgage lending.

In the budget announcement in March Osborne hinted that he might extend the FLS beyond January 2014 and growing pressure from the IMF has prompted reports that an announcement may be imminent.

Director general of the British Chambers of Commerce John Longworth said the proposed extension showed that the Chancellor was "listening hard and acting to address continued business frustration" around access to funding for businesses.

He added: "While we will have to wait for firm details of the Treasury's proposals to emerge, we welcome the Chancellor's determination to look at ways to make Funding for Lending work for UK businesses, many of whom still feel frozen out from access to finance. Much will depend on lenders' appetite for risk, but widening the types of business finance covered by the scheme can only be a positive move.

But he said the Chancellor should go further. "Were they to extend the backing of the Funding for Lending scheme's billions to the embryonic Business Bank, they would energise a new and crucial player in the lending market, and help to solve the long-term structural gap in finance that continues to strangle far too many growth businesses across the UK."

Meanwhile the Federation of Small Businesses (FSB) national chairman John Allan said: "Funding for Lending (FLS) has had a much more positive impact on the mortgage market while lending to small businesses has stalled.

"It is becoming increasingly apparent to the FSB that further action is needed to get finance to small firms. We hope that opening up FLS to non bank providers and not just relying on the high street banks is one way do that and means that more small firms should get access to the finance they need to grow. We look forward to hearing more about the initiative."