Britain will gain EU regulatory approval this week for its 20 billion pound guarantee scheme to boost the flow of credit to cash-starved small and medium-sized businesses, a person familiar with the matter said on Tuesday.

Chancellor George Osborne unveiled the proposal in November as banks cut back on providing credit in the wake of the financial crisis.

The National Loan Guarantee Scheme aims to cut the cost of borrowing for companies by providing government guarantees for banks' funding. The government wants the private sector to play a bigger role in the economy and boost demand.

The European Commission, which has the task of ensuring a level playing field across the 27-country European Union in competition matters, has been assessing the scheme to see if it complies with EU state aid rules.

Approval from the European Commission is imminent and could come in the next few days, said the person, who declined to be identified because of the sensitivity of the issue.

The EU executive has cleared a number of similar schemes across the region under temporary rules adopted because of the financial crisis, with the amount authorised between end-2008 and end-2010 reaching 82.9 billion euros.

(Reporting by Foo Yun Chee; Editing by Rex Merrifield and Mark Potter)