Britain urges banks to access EU funds for lending

LONDON (Reuters) - Bank lending to small British businesses could be boosted by European funds worth four billion pounds ($6.6 billion), finance minister Alistair Darling said on Thursday, as Britain tries to get banks to do more to support the economy.

After offering 50 billion pounds to recapitalize Britain's struggling banking sector earlier this month, the Labour government has put pressure on banks to increase lending to help stave off a prolonged downturn following the credit crunch.

British small and medium-sized businesses stand to gain as much as a sixth of a 24 billion pound ($39.64 billion) European Union loan package between 2008 and 2011.

British banks have indicated they might secure about one billion pounds a year from the funding from the European Investment Bank (EIB), the EU's lending arm, the government said.

"Banks have as much interest as small businesses, as the rest of us, of ensuring that we help small companies get through this difficult period," Darling said.

"It's very easy in the good times to go around encouraging people to sign up with you as a bank, but remember the difficult times, small businesses need help as well and we want to ensure they get that help."

British Bankers' Association figures show total new net lending to small business from banks in the year to June 2008 stood at 5.7 billion pounds, of which EIB funding was around 1 percent.

The loans would be delivered to British businesses by commercial banks through simplified, more flexible EIB loans than have been applied in the past.

"At this difficult time for the world economy it is right that we look at innovative forms of finance for our small businesses. And it is right that we work with our international partners to help businesses here in Britain," Prime Minister Gordon Brown told Reuters.

"I have discussed with President Sarkozy and Chancellor Merkel in recent weeks how we best use the resources of the European Investment Bank to help businesses across Europe," he said, referring to French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Finance minister Alistair Darling and business minister Peter Mandelson met Philippe Maystadt, the head of the EIB, the European Union's lending arm, on Thursday.

"Central to our recovery is lending by banks to business. So my number one priority for small firms is to ensure that they can carry on getting access to the credit and loans that they need to keep growing," Brown said.

"That is why we have taken unprecedented action to ensure the financial stability of our high street banks. But that was just the first step as we ensure that the banks do not unfairly penalize small firms."

(Additional reporting by Matt Falloon; editing by Stephen Nisbet)