HBOS has agreed terms with the European Investment Bank today providing HBOS with a £250 million fund to aid small businesses that bank with them.  The move comes after the Government, who recently took control of the Royal Bank of Scotland, called for banks to follow in RBS’s footsteps and continue to lend to small businesses through the economic crisis.

The Bank of Scotland, owned by HBOS and part of Halifax, said today that the funding would support its 180,000 of its small and medium sized business customers.  The £250 million funding from the European Investment Bank is a section of the much larger £7 million bank fund made available by the EIB last month.

Chancellor Alistair Darling announced the funding for banks in the pre-budget report last week, claiming that a further £4 billion was readily available for the British business economy.  However, recently it has surfaced that only £1 billion of that fund will be made available for this year.

The Bank of Scotland is aware of the current problems being faced by the small businesses in Britain during the economic downturn, and speaking on the matter Adrian Grace, the Bank of Scotland’s managing director of commercial lending, said, “We understand the financial pressures that small business is facing during these difficult economic times.  That is precisely why we have launched this package of measures, to provide both financial assistance and, equally importantly, some reassurance that the bank is committed to supporting small business throughout the UK.”

The Bank of Scotland stated that the £250 million funding would be made available to those small businesses that employ less than 250 employees – a large percentage of British small businesses.

Lloyds TSB has also announced plans to pass along future interest rates to their customers over the rest of 2008 and 2009.  They have also promised to avoid charge increases as well as providing seminars for customers around the country presenting “expert guidance”.

However today Eric Daniels, the managing director of Lloyds TSB Commercial, declared that the Government’s plans for bailing out banks could work against the idea of bank lending.  He said, “I don’t believe that banks are going to quickly restore lending and help the economy because of the funding and capital issues.  Banks will try and repay the Government as quickly as possible. And one of the ways to free up capital is to stop lending.”

The Bank of Scotland declared that they would also be able to provide a strong discount on their lending, up to 0.8 per cent, on standard small business rates of lending.  The bank also stated that they would be supplying renewed overdraft rates for a year, seeing the small business customers connected with a base rate compared to a Libor rate so they would not be liable for repayments for up to 12 months.

Adrian Grace went on to say that the Bank of Scotland would be aiming to help small businesses as they claim they have done since their conception, saying, “Bank of Scotland has been supporting and funding small businesses for over 300 years.  We are confident that these measures will make a real difference to our small business customers.”

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