High-street banks are continuing to hit businesses with punitive interest rates for loans and overdrafts and are resorting to more severe measures to ensure they are paid.
Some are demanding that owners of small businesses put up personal assets as collateral in return for a business loan. Others are changing conditions of loans by sending emails rather than meeting in person, and giving borrowers just 48 hours to comply with unilaterally-rearranged overdraft and lending agreements.
The Business Secretary, Lord Mandelson, said he was alarmed by the banks' behaviour: "That is not the sort of constructive relationship that is sustainable between banks and businesses.
"I want a constructive relationship with them, of course, but they have to know they are going to be tested and judged by what role they play to help Britain and British business get through this economic storm."
The Prime Minister, Gordon Brown, also heaped the pressure on misbehaving banks. "There is a loss of confidence in the banking system and they are increasing that loss of confidence by not acting the way banks usually do," he wrote in a Sunday newspaper.
One businessman, who runs a small building firm and did not wish to be named, is at risk of losing his family home after the bank demanded it as collateral against a loan. "It's a nightmare," he said. "We have a viable business which has a cash-flow problem. The bank is sitting back, knowing they have my house."
Another property investor, Paul Cox, from Surrey, was also asked for his personal property to be put up as collateral against a business loan by the Royal Bank of Scotland just last month – despite an excellent record with the bank. "I'm fortunate – I could walk away," said Mr Cox. "Others have to accept punitive terms." RBS received the biggest slice of the Government's bailout deal – up to £20bn.
The Federation of Small Businesses (FSB) said that when some members approached banks to discuss loan agreements, their accounts were reissued under harsher lending terms.
Chief executives of Britain's big banks, who have been regularly meeting with the Government and small business groups, have all made positive noises about ensuring viable small businesses have the access to finance that they need. But branch managers are often reluctant to return to relaxed lending policies which may put their branches in a perilous position.
"We need to see promises made at the top level filter down to local level where the damage is being done," said FSB spokesman Stephen Alambritis. "We support any measures to help businesses get financing. If it means direct lending from the Government, so be it."
There was potentially good news for small businesses, however, with RBS announcing yesterday that it will not change the terms of overdraft agreements for a year. Sceptics pointed out that it did not mean RBS would lend money under those conditions.
It's the evil banker – he's behind you!
Oh no he isn't. Oh yes he is. Forget the giants, the wicked stepmothers and warty witches. Enter stage left: the financier. Writers are turning to the world of banking to find their villains for drama and pantomime. In Dick Whittington at Islington's King's Head Theatre, for example, the King Rat is a banker intent on bringing down the economy of Gran Canaria by suddenly calling in loans to small businesses. It could never happen in real life...Reuse content