Chancellor Alistair Darling calls on banks to increase lending to small businesses

Chancellor Alistair Darling has called on banks to "live up to the promises" of improving their rate of lending to small businesses.

Darling will today (27 July) meet with banks to voice concerns that the cost of lending to smaller firms has increased despite the interest base rate remaining at the historic low 0.5%.

"That's why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up?," he told Sky News.

According to the latest figures from the British Bankers' Association (BBA) though, lending levels rose to £391m in June, while nearly 50,000 'new relationships' with small businesses were forged.

John Wright, national chairman of the Federation of Small Businesses, said it was "encouraging to see the Chancellor calling the banks to account for their lending to small businesses."

He said: "Despite interest rates now at an historic low, around a quarter of members of the Federation of Small Businesses are still experiencing high costs of finance with many seeing rates on loans and overdrafts as high as 7 per cent."

Wright went on to say that while bank lending is starting to "trickle through" to small businesses, this has been coupled with hiked up charges.

"The Government has helped the banks and they must now play their part at branch level by supporting small businesses and therefore stimulating economic recovery," he added.

David Dooks, BBA statistics director, said the figures "provide more evidence of the high street banks’ support for small businesses".

"Structured term lending rose by £366m in June, while deposits and numbers of new business relationships continued to hold up, perhaps reflecting improved business confidence in trading conditions," added Dooks.

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