Banking rescue deal offers boost to small businesses

The government’s commitment to plough £37 billion into a number of high street banks should bring hope of easier finance to the small business community.

The move, which sees bail-out public money being pumped into Royal Bank of Scotland, Lloyds TSB and HBOS, comes with several stringent conditions attached.

Among these are a commitment by the banks to return to mortgage and small business lending levels last reached in 2007.

Additional taxpayer funds may also be used to provide Barclays with much-needed liquidity.

Under the terms of the bail-out, the government is expecting that banks will make competitively priced debt facilities available to smaller firms once more.

The aim of an upturn in small-enterprise lending is to ensure that firms have sufficient capital to invest during the economic slowdown.

Baroness Vadera, the small business minister, said: "We are determined to do all we can to support businesses through this difficult time. The package commits banks to making immediately available loans at the volumes of last year for SMEs at competitive rates."

Reacting to the news, Richard Lambert, the director general of the CBI, said: “This is an historic day for British capitalism that will result in a fundamental change in the structure of the banking system. It is also an important and necessary step to recapitalise our major banks.

“Very significantly, one condition of the deal is that the banks will undertake to maintain lending to small and medium-sized companies, and for mortgages, at the levels of 2007, which is good news for business and individuals.”

David Frost, the director general of the British Chambers of Commerce, commented: "The clear evidence is that funding is being restricted to business, not just to small businesses but to large ones too. What we have seen is that the issue is not only the amounts of funding but the rate at which it's charged and the time that is requred for authorisation – all that needs to be looked at and the government should monitor it."

However, the British Bankers' Association (BBA) raised questions about the details of the commitment to lend.

The BBA argued that the banks have actually increased the level of lending to SMEs in the first six months of this year compared with the same period in 2007, with fixed period loans up by 11 per cent and overdraft arrangements up by 3 per cent.