Banks accused of being Scrooge-like as SMEs still struggle to find loans

LENDERS continue to be accused of ratcheting up rates for small business customers as a new report today claims as many as one-third of SMEs are failing to find affordable credit, despite banks making commitments to lend fairly.

The Federation of Small Businesses (FSB) accused banks of still being "Scrooge-like" as its poll of 5,000 members showed that 30 per cent had seen an increase in the cost of banking in the past two months.

This is despite four major lenders pledging to give extra support to small businesses, with some promising to maintain lending and freeze rates on overdrafts.

Last week, HBOS guaranteed overdraft rates for its small business customers for at least a year as well as maintaining the link between overdrafts and the Bank of England base rate rather than the inter-bank lending rate, the Libor.

This brings it in line with Royal Bank of Scotland, which pledged similar business support measures a week earlier.

Lloyds TSB, which is in the process of taking over HBOS, also promised to pass on any further reductions in base rates in 2008 and 2009 to small businesses as part of a "six-point charter" for SME customers.

It also pledged to maintain overdraft limits and overdraft margins at existing levels.

HSBC yesterday announced the creation of a $5 billion (3.4bn) global working capital fund forSMEs, with 1bn earmarked for UK customers.

The banking giant will also lend up to 15bn in mortgages in 2009, 20 per cent more than last year and almost double the level seen in 2007.

But the banks' promises have been dismissed by some business advisers as mere public relation exercises as their clients continue to face increased arrangement fees and higher overdraft rates.

Donald Fosyth , commercial partner for accountancy firm Scott-Moncrieff , said just last week clients had complained of six-fold rises in arrangement fees, higher overdraft fees, withdrawn credit facilities and mysterious new account maintenance charges as high as 60.

"Why are arrangement fees so much higher? Why does it cost so much more? You assess the risk last year and then again this year. You may have a different answer, but the process doesn't cost six times more. It strikes of usury really," said Forsyth.

However, another Scottish adviser, Martin Gill, managing partner for PKF in Scotland, reported a shift in the banks' approach to smaller companies.

"It is the first signs of positivity in terms of owner-managed small businesses in Scotland," said Gill. "We haven't seen much positive in terms of the banking system until the last week or so."

FSB chairman John Wright said: "With interest rates down, it is more important than ever that the government's small business finance scheme is put in place. The onus will now be on the banks and their branch managers to stop their Scrooge-like tactics and open their pockets to small businesses."

Mark Elliott, a spokesman for Bank of Scotland, said the bank was "open for business". He added: "Last week we reiterated our commitment to small businesses by outlining a package of new measures to assist firms."