Banks continue to squeeze small businesses by charging ever-increasing interest rates on loans and overdrafts – despite the Bank of England dropping interest rates to 0.5 per cent – says the Federation of Small Businesses (FSB).

More than 100 small firms have already responded to the FSB as part of its Bank Watch monitoring system of bank branches. The majority of respondents said that their interest rates had been kept at between five and 10 per cent above base.

Some reported that the banks were doubling interest rates on overdrafts and loans, rising to around 20 per cent. 
Speaking at the FSB’s annual conference in Newport, FSB Policy Chairman John Walker said that as members of the organisation were still having trouble getting access to finance, the FSB had launched a new set of banking principles of good practice which high street banks were encouraged to sign up to.

The Seven Principles of Small Business Banking act as a foundation for mending the broken relationship between small businesses and their banks and restoring lending to viable small firms.

The principles include agreeing to fix costs on loans and overdrafts for the whole of 2009 if repayments and limits are not broken.

John Walker, FSB policy chairman, said: “Things are tough for small businesses at the moment and they really don’t need banks charging over the odds interest rates on their loans and overdrafts – especially as the Bank of England’s base rates have been getting lower and lower in an attempt to stimulate the economy and bank lending.

“The FSB’s seven Principles of Small Business Banking are an important step towards mending the difficult relationship between small businesses and their banks so they can pull together to get the UK out of recession as quickly as possible.”

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