Lloyds calls for pressure on corporate giants to ease squeeze on SMEs

Lloyds TSB has called on the Government to put pressure on big companies to speed up payments to small businesses and help them weather the economic downturn.

The bank highlighted late payment by Britain's corporate giants as a major problem for small and medium enterprises (SMEs) yesterday as it pledged to pass on interest rate cuts and maintain overdraft terms to firms that form the lifeblood of the UK economy.

John Maltby, the managing director of Lloyds TSB's commercial bank, said the Government's calls for banks to increase lending to SMEs ignored the squeeze small businesses face from customers taking longer to pay and suppliers shortening credit terms.

"What is creating the cash squeeze on small businesses? There is less focus on that and what leverage and focus the Government can bring on that," Mr Maltby said. "What is happening to get more attention on those businesses not paying on time?"

The Government recently pledged to pay its SME suppliers within 10 days and Mr Maltby said it could lean on big companies to do the same. Tesco faced protests last month when it doubled payment times for non-food suppliers to 60 days.

Mr Maltby said Lloyds had already passed on the two-point cut in interest rates since September and that its promise to match further reductions and maintain overdraft terms for SMEs confirmed the bank's existing business practice. The Bank of England's Monetary Policy Committee begins its rate-setting meeting today and is under increasing pressure to announce a big cut tomorrow. Lloyds also said it would agree to any reasonable request for short-term finance from its business customers. It will hold 120 seminars throughout the country to advise small firms on how to weather the economic storm.

British Bankers' Association figures show that SME lending by the major banks was up by almost £1bn in the third quarter, yet small firms complain that they are struggling to raise credit or paying crippling rates to refinance loans. The Chancellor, Alistair Darling, has ordered an inquiry to find out the facts behind the banks' treatment of SMEs, which account for more than half of gross domestic product.