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News that RBS is setting aside £140 million of new lending for small businesses in Scotland is a welcome sign of improvement in bank finance for the SME sector after widespread criticism about the banks’ low levels of lending to small businesses.

The latest October Trends in Lending survey from the Bank of England out yesterday reported that the underlying trend in business lending seems to be showing improvement, with the headline figures being held back by contracting lending to the property sector. And the Bank’s regional agents’ September report indicated that “corporate credit availability and pricing had continued to improve gradually. That picture included conditions for some small and medium-sized enterprises.”

The £140 million set aside by RBS for SMEs north of the Border represents 14 per cent of an additional £1 billion Small Business Fund set up by RBS and NatWest aimed at supporting small businesses across the UK.

Says Ken Barclay, [pictured] RBS Scotland chairman and MD of corporate banking here, “The £140 million will offer new borrowing with fixed rate loans from £1,000 to £250,000 – and with no arrangement fee.”

On current demand for business lending, the environment has improved markedly from a year ago.

“There is more enthusiasm”, Barclay says. “More of our customers are talking about expansion and there is more optimism.

“Our stock of lending overall is still bumping along the bottom but we are putting in more at the top of the tunnel.”

The fund is available immediately and will continue until the target sum is distributed. The two banks’ have set a target of making nine out of ten loan decisions within five days.

Says Les Matheson, CEO of personal and business banking for RBS: “We want to be the number one bank for business customers and as we work to regain the trust in our bank we want our business customers to be confident that by doing business with us they can realise their ambitions.”

Overall, bank lending to business continues to look sluggish. But the Bank of England lending survey reveals “Much of the weakness in lending to businesses reflects a contraction in lending to the real estate sector which accounts for around 30 per cent of the stock of loans.

“In recent months, this was partly offset by positive contributions to the aggregate growth rate in the stock of lending from industrial sectors other than the real estate sector. These include the distribution, professional and other services, and manufacturing sectors.” However, the regional agents reported that SME’s “operating in sectors like house building or leisure had continued to struggle to obtain finance.”

Demand for credit from corporates is expected to pick up in the fourth quarter, especially from medium-sized corporates.