Banks agree new code of lending to small firms

Banks have agreed to a revised ‘statement of principles' of practice to govern their dealings with small companies.

The new principles were agreed at a meeting yesterday between business secretary Lord Mandelson and representatives from small businesses and banks.

The new principles are designed to provide small firms greater protection until statutory controls are implemented next year.

UK banks have agreed to take business assets as security for loans before the borrowers personal assets, to offer small firms face-to-face meetings if they begin to get into financial difficulties and to speed up the process of switching accounts to another lender - the target time for this has been halved to five days.

The Federation of Small Businesses (FSB) recently conducted research which revealed that 45% of small business owners experienced difficulties in switching bank accounts.

Stephen Alambritis of the FSB was present at the meeting and welcomed the outcome: "The first meeting was a bit soft on the banks... but the evidence fed from constituents to MPs has got through," he commented.

The British Chamber of Commerce (BCC) described the meeting as "very positive."

"There was clear pressure on the banks, particularly in relation to the statement of principles," said David Frost, the BCC's director-general.