Government urges banks to improve small business treatment

Chancellor Alistair Darling and Business Secretary Lord Mandelson will meet with bank chiefs today, to urge them to show more "discretion, understanding and sensitivity" to small firms.

Under a £37 billion bail-out agreement announced last week, three of the UK's biggest banks will be obliged to lend to small businesses at 2007 levels.

As part of the rescue deal, HBOS, Lloyds TSB and The Royal Bank of Scotland must maintain for three years the "availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels".

However, business groups have said that despite the agreement, lending conditions for small firms have worsened.

In a letter to the British Banking Association, chief executive of the Forum of Private Business Phil Orford said: "Real interest rates on overdrafts, in particular, are as high as 15%, lending facilities are being reduced or withdrawn and charges for renegotiated agreements are excessive.

"We believe this will make survival extremely difficult for many small businesses and consider it to be an unacceptable position given the clear public obligation the banks have, to deliver something tangible to personal and business borrowers."

According to the Financial Times, Lord Mandelson said the Government will use today's meeting to urge bank chiefs to "approach these adjustments [to credit agreements] with far greater discretion and understanding and sensitivity to the situation small businesses are facing".

"We want to see the banks being responsible but not unduly risk averse," he said.