Are bailed out banks failing to help small businesses?

When businessman Harry Murray hit cash-flow problems, he never dreamt his bank would stop his company's overdraft and freeze its assets, especially as his joinery firm had a full order book.

Despite the downturn in the housing market, Mr Murray's firm was still securing orders for the crafted staircases it produced from a unit in a residential street in Staffordshire.

"I had no choice but to sell the factory and we paid the bank back every single penny I owed, which I wish to God I never did," he told BBC File on 4.

Four months later, the business is operating again, run by his daughter, as a tenant of the factory's new owners.

"I showed the bank I had contracts in the pipeline and I had them written down... if they'd just had an ounce of trust in businesses, it could be a completely different story now."

Mr Murray is annoyed that his bank, Royal Bank of Scotland (RBS), which is 84% owned by the taxpayer, was saved by government money, but could not help him.

Finance obstacles

"If they can be bailed out on a scale like that, why can't they just help a small business like myself," he added.

Another businessman who is aggrieved at his treatment by RBS, Omer Kutluoglu, has found that even when the bank agrees to lend, its terms are too harsh.

He believes there will be great demand for his product, an alternative to plywood boards using recycled plastic.

Mr Kutluoglu had secured £9m from venture capitalists and £500k from the East of England development agency, but wanted £2m from his bank.

Image caption HMS Joinery now has so many orders again that carpenters work flat out

"The bank told me they would loan me £2m if I gave them £2m first. I was dumbfounded. I said, 'If I had £2m, why would I want it in the first place?'" he said.

The business eventually got finance from a Belgian bank.

Peter Ibbotson, RBS's small business chairman, denied the bank lacks sympathy for small businesses, and said 17 out of 20 businesses who apply for loans get the finance immediately.

He said in the case of Mr Kutluoglu's business he said, "We believe we did the right thing for the taxpayer."

In the case of Mr Murray, Mr Ibbotson said: "We worked with Mr Murray over about a year and a half in difficult times, and we got to the position at the end where we felt the right thing to do for the bank and for the taxpayer was to work with Mr Murray and work out how he could repay the facility."

Cable's pledge

Business Secretary Vince Cable, who was a vocal critic of the banks in opposition, has promised a redoubling of his efforts to make the partly state-owned banks lend more to British businesses.

"We have to change them and make them open for business," he told File on 4.

"We have agreements and banks have not been able to meet them. The question is, how we can give them more teeth and also get more information as the process is very opaque, making the banks report more accurately what they are doing."

But Mr Cable could not specify how the government could enforce its policy and he added: "There's no silver bullet, there's no single mechanical formula, the chancellor and I are going to meet the leading banks to explain the problem.

"Businesses are going to have to be a little bit patient. We will be talking to the banks.

"What is important is that we get banks lending to good British companies. It is the results that matter rather than the means."

File on 4 is broadcast on BBC Radio 4 on Tuesday, 29 June, 2010, at 2000 BST, repeated Sunday, 4 July, at 1700 BST. You can listen via BBC iPlayer or download the podcast.

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