Nationalised banks are being told by the government to supply the additional cash that Jaguar Land Rover needs to survive, a banking source has said.

The source told the Birmingham Post that taxpayer-owned banks such as Lloyds and RBS are having pressure put on them by the government to put up as much as £500?million in loans that the West Midlands carmaker desperately needs.

The source said the government would underwrite the loan as part of its £2.3?billion aid package for the beleaguered British car industry. The report came a day after the European Investment Bank (EIB) approved a £340?million loan to JLR for research and development into eco-friendly technology.

West Midlands Conservative MEP Malcolm Harbour said the EU loan was an example to the banks that JLR was a safe company to lend money to.

He said: “The EIB has exactly the same level of conditions that the clearing banks have. If anything the EIB might have tighter conditions.”

He said the government was doing the right thing if it was talking to the banks, but said it was still disappointing how long it had taken, given that both the cashflow problems at JLR and the nationalisation of the banks had been ongoing for months.

A spokesman for JLR welcomed the development, saying the only reason the firm had to go to the government was because banks were refusing to lend at reasonable levels.

But while JLR supporters welcomed the step taken towards a package that might save the firm, manufacturers’ organisation EEF said it still might not be enough to protect all the supply chain.

Martin Wassell, the Midlands region director for EEF, said: “This is only a temporary reprieve for many in the supply chain. Acute pressures remain and threaten to undo the great strides made by manufacturers in recent years to improve their performance.

“The need for short-term measures to have an immediate impact is therefore becoming increasingly urgent.

“The chancellor in his budget should focus on minimising additional costs on businesses, alleviating cashflow pressures facing manufacturers and supporting vital long term investment.

“In addition, the government should introduce a temporary scrappage incentive scheme for the motor vehicles sector.”

The German government approved an extension of its scrappage scheme yesterday, increasing the funds behind it to 5?billion euros.

Under the plan owners who trade in cars that are nine years old or more for new fuel-efficient models receive a bonus of 2,500 euros.

n Meanwhile stricken van firm LDV said it was still waiting for approval for a loan from the EIB, but that the application hinged on securing the support of a key investor.

A spokesman for the Washwood Heath firm said it was “hoping to be notified soon” about the loan, but that it relied on proving to the European bank that the firm had a viable financial future.

LDV needs a bridging loan of between £5?million and £8?million to keep it afloat.