Small companies fear banks are returning to 'bad habits' of '90s

Small businesses in Britain face having to pay as much as 15 per cent for vital overdrafts as the effects of the credit crunch bite into the real economy, industry figures have warned.

Speaking to The Independent on Sunday, Stephen Alambritis, from the Federation of Small Businesses, singled out Barclays as the worst offender. He urged the UK's biggest banks not to "return to the bad old habits of the Nineties" when many small businesses were forced into bankruptcy by aggressive practices.

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"There is evidence of banks jacking up overdrafts and transferring overdrafts into loans," said Mr Alambritis. "Barclays, which deals with about 653,000 small businesses, has raised interest 4 per cent above base from 6.8 to 10.8 per cent, which brings total overdraft costs for these businesses to 15 per cent. That's too much."

LloydsTSB, which recently scooped up ailing rival HBOS, has also been "renegotiating its rates" for its 850,00 small business customers.

Mr Alambritis, who met with outgoing business minister John Hutton earlier this week to discuss the squeeze by banks on small businesses, said: "The UK has 164 banks, and 89 per cent of small businesses are with the four main clearers. So it requires minimal co-ordination between government and banks to protect small businesses. In the US they have about 12,000 banks, so it's much harder."

Official figures estimate that there are 3.6 million small to medium-sized enterprises in the UK, with 2.4 million being sole traders.

Insolvency experts are predicting that failures among companies could climb to more than 17,000 this year if the second half of 2008 mirrors the first. Companies going into receivership with at least a five-year trading record jumped by 130 per cent in the second quarter of the year.

Brian Capon from the British Bankers' Association said: "Although $53bn (£30bn) has been taken out in loans and overdrafts, on the other side of the balance sheet $54bn has been deposited from small businesses in the same period. It is most important for these businesses to make sure their accounts are fully up to date when applying for loans.

A Barclays spokesman said: "We are making changes to the interest rates of the minority of small businesses that have an overdraft, but on a case-by-case basis. We haven't needed to change our loan criteria. About three-quarters of loans are still being approved – we are still lending.

"We introduced a free scheme about a month ago called Credit Focus, enabling clients to check on the credit rating of their top five customers. It is essentially a window to help these business check their own credit base."