A major bank is to freeze overdraft charges for small businesses in a bid to ease growing financial pressure on the sector.
NatWest and the Royal Bank of Scotland said up to a million customers could benefit from the stay, which comes into force on December 1 and lasts until the end of next year.
The bank also said overdrafts for small businesses would stay in place for 12 months without demands for repayment.
A spokeswoman for the British Banking Association (BBA) said the move was an attempt to shore up struggling clients.
She said: “Increasingly our members are trying to find ways to help their small business customers in particular and to see what they can do in the current climate.
“Against a general trend of other costs going up it does help small businesses in terms of cash flow to know that some of their charges are fixed.
“Frankly, the banks want to hang on to customers and they clearly see this as a commercial advantage.”
Overdraft lending to small businesses rose by four per cent in the last year, and loans by 10 per cent, according to BBA figures released last Friday.
Peter Ibbetson, chairman of small business for RBS, said: “The bank fully recognises that one of the biggest worries facing small businesses is the increase in the cost of borrowing and we believe this move will reassure our customers that the Bank is committed to supporting them.”
Around a quarter of the UK’s small businesses bank with NatWest and RBS.
Stephen Alambritis from the Federation of Small Businesses said: “This is a very welcome initiative from NatWest and RBS. Small businesses are concerned about the availability and pricing of their overdrafts and we are pleased that the Bank has listened to its customers and taken this action to support them.”
The BBA was unable to say if other banks would follow suit.
Phil Orford, chief executive of the Forum of Private Business, said: “This commitment from RBS must be welcomed by us, by all political parties, but, most of all, by many hundreds of thousands of small businesses, which have now been given short and medium term certainty about their borrowing arrangements. This is just the sort of action we have all been calling for and it should be applauded.”
The Rt Hon John McFall, MP and Chairman of the the House of Commons Treasury Committee, said: “The next year will be difficult for all businesses. What’s required is stability, certainty and a close relationship between small businesses and their banks.
“I welcome this initiative from RBS/NatWest and call on other banks to come forward with proposals that will help businesses navigate through this difficult period.”
Shriti Vadera, Minister for Economic Competitiveness and Small Business, welcomed the move.
She said: “There is a growing demand from the business community for increased assurance that the banks are only passing on fair costs and are not unduly risk averse.
“We have brought the banks and small to medium enterprises (SMEs) together in the Small Business Finance Forum to thrash these issues out and identify some practical measures we can all take, but in these tough times small firms will choose to bank where they are fairly treated.”
She added: “RBS/NatWest has demonstrated that they understand the challenges facing SMEs and are taking steps to provide certainty and stability - this is a welcome intervention and I would encourage other lenders to follow their leadership.”