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Bank chiefs will come under pressure today to ease lending to small firms at a meeting with the government.
The chancellor, Alistair Darling, and business secretary, Lord Mandelson, are expected to tell the major high street banks at a meeting today that they need to provide cheaper finance to soften the impact of the recession.
The subject has climbed to the top of the business agenda after a series of complaints from small firms that banks have raised overdraft rates in recent weeks, sometimes by as much as five or six percentage points.
The Federation of Small Businesses, which represents many of Britain's 4.5m small businesses, said firms were suffering and many could go bust unless banks took a more lenient stance on lending.
Sources close to the talks said it was unlikely to be a tub-thumping session, but ministers were keen to impress on the banks that they needed to pass on the benefits of the government bail-out to customers.
The government pledged £37bn to bail out the banks earlier this month. At the time the Treasury said it expected banks to return to 2007 levels of lending. However, it has remained unclear how banks could afford to meet demands for loans from business while they themselves are constrained by strict lending rules imposed by the regulator.
Specific measures could mimic those thrashed out between the banks and the government to save farmers from going bust during the foot-and-mouth crisis, including delays on loan repayments.
Lord Mandelson has told MPs that banks will be urged to show greater "discretion and sensitivity" in their dealings with small firms.
In a select committee hearing earlier this week, he said there was some evidence that smaller businesses were being hit with a "double whammy" by some banks. He said they were being asked for more security and higher interest payments on loans, while also paying extra charges.
Earlier this week, the government revealed a £350m package to help improve training and provide swifter access to government funds.
- Banking sector
- Banks and building societies
- Credit crunch
- Economic policy
- Alistair Darling
- Peter Mandelson
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