Erikka Askeland: Banks finally put themselves in the firing line for small businesses

THE good news, unless you are in the corporate insolvency industry, is that company failures have so far been fewer than expected. The bad news is that, double dip or not, there is definitely going to be more pain to come.

This is because the banks haven't finished working out their "bad" loans. In fact, despite all the high-profile turmoil in the retail and property sectors so far - the failed property firm Elphinstone only the most recent - loans to other sectors such as manufacturing and services are next to be passed under the beady eye of the newly stringent breed of risk-averse banker.

Quite frankly, if you can possibly avoid borrowing from the banks you will. This is one of the reasons why they are insisting that, try as they might, they can't give their money away. But behind these crocodile tears lies the fact that the companies they really wish to loan money to don't want it. The ones that can get it don't need it but the ones that do need it are left out in the cold.

Sure, it used to be that anyone with a sharp suit and a land deal twinkling in their eye had debt shovelled at them by the barrel full. But then that was what got the banks and their borrowers into the deep economic doo-doo, pardon the technical language, they are in now.

Most lenders and borrowers were just doing what people have done from time immemorial when there is a glut of something desirable - they don't ask why but rather grab while the getting is good.

Of course, the reasons why and how it all got so out of control has been a growth industry in its own right these past 18 months. A paper recently submitted by former fund manager Tim Bush to the Accounting Standards Board's Urgent Issues Task Force presents the latest argument - that new accounting standards, FRS26 if you must know, introduced just before the massive lending boom in UK and Ireland allowed banks to throw out the rules when it came to measuring the risk of their loans, which meant they could manufacture them much cheaper.

But for companies that could use an extension to their loan that won't cost their house or their business, what happened then is less relevant than the need to pay bills or staff is now. Having plunged us into a world of economic chaos, the rules set out by banks on lending have since swung dramatically in the opposite direction. And no-one really seems to understand what these new rules are.

This Friday, the Federation of Small Businesses (FSB) in Scotland has arranged an event so that businesses can ask the bankers themselves. The event, which will be hosted right in the heart of darkness at Royal Bank of Scotland's headquarters at Gogar, is likely to attract an audience of 300.

Up until now, FSB Scotland has been a fiery critic of the Scottish banks.Both RBS and Lloyds have an effective duopoly in the Scottish corporate lending market that other lenders such as Clydesdale, HSBC, Barclays have tried to break but haven't yet. The FSB has accused the banks for having a "take it or leave it" attitude to supporting their small business customers - because there is little option for them to go anywhere else.

Part of the problem is that, if they have survived at all, small businesses probably had a bad time of it last year. This will be evident in their most recent accounts which are used to prove creditworthiness, to lenders, suppliers and insurers. The FSB has set up a plan to deal with this too - members can sign up free to use the "CreditPal" service, which reports and validates a more up-to-date picture on a firm's trading on a month-to-month basis.

The product, offered by a software analytics firm called Future Route, is not yet a defacto standard used by banks to make decisions - but the FSB believes it does help, particularly if trading has improved since the last annual report. It is another weapon in the armoury to demonstrate that maybe supporting the small business isn't as risky as banks' criteria says it is.

The event on Friday is a conciliatory step for the FSB, which says it is time to "start rebuilding mutual trust and respect" between the grim-faced banks and their panicky, disaffected small business customers. And it is telling that it is RBS that seems willing to be put into what the FSB expects will be a "robust" line of questioning from attendees. As the bank with the biggest taxpayer shareholding, it is most subject to the political pressure coming from Vince Cable and Alex Salmond to start loosening the purse strings. But even if the corporate bankers can't return to the days of handing money over by the fistful, then they can explain what it takes to meet their tough new rules.

Even a rogue banker can stretch to a Greggs breakfast pain au chocolat

FORGET that it should take the rogue French banker a mere 49,000 years to pay off that €5 billion (4.4bn) fine. The story of comment yesterday was that Greggs, that bastion of the great British sausage roll, was going all continental on us and introducing croissants and pains au chocolat alongside its pasties and cream buns.

Was it because the firm hopes to attract a new breed of customer - the newly impoverished middle classes who are downtrading from flat whites and fancy cupcakes to join the queue of builders getting a sausage roll and a cuppa?

Sales growth has slowed at Greggs - perhaps a barometer indicating that those builders have been hit hard by the recession too.

But the baker's main proposition remains - even Jrme Kerviel could probably stretch to a Greggs for his elevenses.