New bank loan deal could mean costs rise

The head of Scotland's manufacturing lobby group fears the banks will impose higher charges as they attempt to meet new government-imposed lending targets.

Peter Hughes, chief executive of Scottish Engineering, said he wants greater clarity from the banks about the new regime and his biggest concern is the cost of borrowing.

The new lending targets will see the banks pledge 190 billion, including 7.6bn into Scotland's small firms sector.

Hughes said his members are "scratching their collective heads and asking: How can we make this work?"

He said: "At the top of the list of concerns is the cost to the companies of borrowing essential funds from banks to finance their operations.

"Already companies are asking us: will there be clearly defined criteria by which companies will be assessed? We have seen in the past that external reviews demanded by banks have been ridiculously expensive and have been levied over and above normal banking fees."

He said the banks were being asked to provide details going back up to three years and projections looking almost as far into the future.

"That is not acceptable. The time taken to prepare responses to these demands is disproportionate and really is only there to provide belt and braces protection for bank officials," he said.

"Company time could be used more productively to build order levels and develop new customers. Even when the orders are signed and sealed the companies are not guaranteed to obtain the finance to carry out the work. The input from banks to assist with the short to medium term cash flow problems is just not forthcoming.

"There is no doubt that the lack of funding has been stifling growth and hindering the development of our Scottish manufacturing engineering companies."

Hughes said: "I find it difficult to disagree with Lord Oakeshott the Lib-Dem peer who said that banks had got off lightly and the inference that the Treasury officials couldn't negotiate their way out of a paper bag."