Page last updated at 16:54 GMT, Tuesday, 11 November 2008

Panel to monitor business lending

Business Secretary Lord Mandelson
Lord Mandelson says the new panel will be in regular contact with the banks

The government is to create a new panel to monitor the levels of lending to small businesses, Business Secretary Lord Mandelson has announced.

The panel will be made up of officials from the Treasury, Department for Business Enterprise and Regulatory Reform, and the Bank of England.

Lord Mandelson made the announcement after he chaired a meeting with small business leaders.

They had earlier warned that many "sound" small firms risked bankruptcy.

Lord Mandelson said the new panel would stay in regular contact with the big five banks - Barclays, HBOS, HSBC, Lloyds TSB and the Royal Bank of Scotland.

He said the panel will enter into a "constructive dialogue with individual lenders on the availability, risk and overall cost of lending to small and medium sized businesses".

'Serious concerns'

Ahead of meeting with Lord Mandelson, David Frost, director-general of the British Chambers of Commerce (BCC), said his organisation had "serious concerns about the availability of credit, and the tightening of credit conditions for small businesses".

Surely it's not too much for small businesses to expect the right financial support

British Chambers of Commerce

"If things carry on like this, many sound UK businesses will be bust by Christmas - it would be a disaster if we lost hard-working businesses and their employees during this downturn," he said.

The small business forum was also attended by representatives of the banks.

In a survey carried out by the Federation of Small Businesses (FSB), 31% of responding firms said they had seen an increase in the cost of their existing finance in the past two months.

"The banks must be held to account on their lending practices at this and subsequent meetings. There must be agreement on how the banks must act and how the government can enforce this," the FSB said.

'Not too much'

The BCC said it had received numerous calls from small businesses who had had credit such as overdrafts being withdrawn, and their loan-terms changed without notice.

"The government has just spent billions bailing the banks out using taxpayers' money. Surely it's not too much for small businesses to expect the right financial support," it said.

Lord Mandelson said he wanted to make sure the government and the did all they could to make sure firms had access to funding.

"What is important now is to identify the concerns faced by both businesses and the banking industry and open up a dialogue to try to resolve these issues," he said.

The British Bankers' Association (BBA) said it would set out the promises banks are making to their business customers.

Angela Knight, BBA chief executive, said: "The UK's banks want to see their customers flourish, even in these testing times."

"Part of that is to ensure they have access to finance as well as independent advice and help when times are tough," she said.

The FSB said it would be launching a bank watch scheme, to assess how decisions by the banks' head offices were carried forward by their branch managers.

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