Chancellor Alistair Darling and business Secretary Lord Mandelson are to urge bank bosses to improve their treatment of small businesses at a meeting later today so that they can soften the impact of the recession.

As part of the conditions of the governments £37bn bail-out, RBS, Lloyds TSB and HBOS must continue to lend at the same level as 2007. However, many firms say that the recent terms offered by the bank have been worse than before, and many are unsure over what the pledge from the banks actually means.

Lord Mandelson told MPs that banks will be ordered to show greater “discretion and sensitivity” in their dealings with small firms.

In the Business Select Committee meeting earlier this week, Lord Mandelson said there was evidence that small businesses were being hit with a “double whammy” by some banks. A large majority of bank have been asking for higher security and higher interest payments on loans, while also paying additional charges.

The British Chambers of Commerce said that firms were struggling to find adequate funding.

“The cost of money is undoubtedly higher than it was and we see no evidence of it coming down,” said the BCC’s director general David Frost.

“Banks are charging for services that were previously parts of the deal.

“And the idea of relationship banking is breaking down. Everything is going through regional offices and it is taking much longer to get the okay on a loan or an overdraft.”

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