Senior Midland bankers have denied claims by MPs that they are driving business to the wall through the imposition of swingeing additional charges.

MPs said recession-hit firms are in danger of collapsing because as they face further hefty bills for loans and credit guarantees .

But directors from the country’s largest financial institutions insisted widespread public perception that companies are unable to obtain additional funding to see them through the economic downturn was wrong and that a record additional amount of money would be pumped into the region’s businesses this year.

But the assurances did not satisfy members of the West Midlands Regional Select Committee, meeting in Birmingham for their first evidence-gathering session of an inquiry into the impact of the recession on manufacturing and the service industries.

The MPs recounted tales from their own constituencies of firms, large and small, being denied additional funding or being asked to meet “extraordinary additional demands” for security from the banks in return for being given the money or having existing credit lines extended.

Chairman Richard Burden (Lab Northfield) said he knew of one firm that wanted a £3 million loan extended and found its bank wanted to increase a £1,500 administration fee it initially charged to £30,000.

James Plaskitt (Lab Warwick and Leamington) said: “I have examples from local companies and they are telling me that they have found credit terms being tightened considerably when they come back for an extension of credit or a roll over of existing terms.”

He said most MPs had experience of managers of small and medium sized firms recounting “extraordinary tightening” of their credit terms including some being asked to put up their homes as collateral when this had not been required before.

This did not match assurances being given by the big banks that money is available, he added.

Labour MPs were on their own at the committee after Conservatives and Liberal Democrats boycotted the meeting.

Tories regard the new select committee system as an attempt to pave the way for regional government, while the Liberal Democrats are angry at being allocated only one seat.

Witnesses from Lloyds TSB, Barclays, HSBC and the Royal Bank of Scotland insisted that more than 80 per cent of applications by businesses for loans were being approved, although they admitted that checks on the ability of applicants to re-pay the money were likely to be stringent.

Andy Youngman, area director for Lloyds, said he expected lending to increase by 20 per cent this year.

“We have money to lend, we are open for business and we are certainly increasing our lending book,” he added.

Peter Ibbetson, chairman of business banking at RBS, said: “Lending is 11 per cent up in January 2009 compared with January 2008.

“We emphatically want to lend, but businesses have to be viable.”

Mr Ibbetson pointed out that most firms wanted cash to extend existing overdraft arrangements rather than loans to invest in growing the business.

He added: “The one question I want answered is, if I lend you money please demonstrate how you are going to pay it back.”