Taxpayer-backed Royal Bank of Scotland (RBS) has announced that it will use a Bank of England scheme to provide cheaper funds to UK manufacturers.
RBS, which is 80% state-owned, said it will target mid-sized businesses for the first time, which typically have a turnover of £25 million to £500 million and are seen as a key source of future growth, often referred to as "gazelles".
The CBI has said if more mid-sized businesses succeeded, it could add £20 billion to £50 billion to annual gross domestic product (GDP) growth.
The bank will offer cheaper funds through the Bank of England and Treasury's £80 billion Funding for Lending scheme, which offers lenders funding at low interest rates over a four-year period on condition it is passed on to businesses and households.
Peter Russell, head of manufacturing at RBS, said: "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 latest initiative comes as the UK is mired in the longest double-dip recession in more than 50 years.
The RBS fund will offer UK manufacturers fixed and variable rate loans of between £250,000 and £25 million, with interest rates and arrangement fees for each new tranche of lending. Manufacturers will also benefit from being able to defer any capital repayments for two years.
Manufacturers will be able to access loans over three and five-year periods. The fixed rates are 2.75% and 3.2% respectively, down from previous rate of 3.45% and 4.25%. For the first time, and directly linked to the Funding for Lending scheme, manufacturers will also be able to access variable rate loans in the fund.
The RBS Manufacturing Fund was launched in January 2010.
Recent research from the manufacturers' organisation EEF predicts the UK manufacturing sector will grow by 5.7% in 2012 and that 12% more manufacturers in the UK as whole expect manufacturing orders to increase as oppose to decrease.