The bank’s promise over the coming year plays its part to revive one of the key elements of the UK economy

Lloyds will pledge to lend an extra £1bn to small and medium-sized businesses over the coming year as it plays its part to revive one of the key elements of the UK economy.

The bank’s promise follows recent Bank of England lending figures which showed a drop of £300m in loans to small businesses in January this year.

The commitment forms part of the government-backed bank’s 2014 SME Charter, which lays out its lending strategy to firms with a turnover of up to £25m.

The SME Charter was published for the first time in 2009, and has been updated annually since then.

Aimed at addressing the complaints from small and medium-sized enterprises (SMEs) that they find it hard to raise finance, it also fulfils the bank’s pledge to the Government to help ease the economy out of recession.

Small business lending is a key growth area for the bank. “The market is very competitive now,” explained Tim Hinton, managing director of Lloyds’ SME and mid-market banking. “This is a very important segment for all banks in the UK. We want to become bigger and more popular in this market.”

Lloyds is the second-largest UK lender to small businesses, with a 20pc market share, down from 22pc last year.

The bank currently has 1m SME customers in the UK and lent £28.2bn last year to small firms.

As well as its £1bn boost to SME lending, Lloyds has increased the maximum amount that senior bank branch managers can authorise on the spot to £1m from £500,000. The charter also promises to help 100,000 start-ups get off the ground in 2014.

In addition, Lloyds aims to boost trade finance by 25pc to help fledgling exporters.

As a result of the Office of Fair Trading’s investigation into the alternative lending market, Lloyds has pledged to comply with its recent recommendations and will signpost alternative sources of finance to its SME customers “where they may be best able to help”.

“We have been working closely with the OFT on the study and will continue to do so with the CMA [Competition and Markets Authority],” said Mr Hinton.

“We have already made a tying and bundling commitment, so that if we lend to a company we don’t make them bank with us for the entirety. And we helped develop the current account switching service, which has reduced the time it takes to switch to seven days.”

According to the charter, Lloyds will continue to pass on savings generated by the Government’s Funding for Lending scheme. Lloyds will offer discounts of the full 1pc on all SME lending. “We will continue to cap our arrangement fees, so that we charge a maximum of 1.5pc subject to fixed minimum levels,” added the bank.

Lloyds currently turns around 70pc of the distressed SMEs on its books. According to the charter, the bank “will maintain or exceed this turnaround rate” going forward. “We want to help our SME customers at all stages of their journey,” said Mr Hinton. “Including when they are in difficulty. Lloyds has bucked the trend as an SME lender, growing 6pc in 2013 and 4pc the year before. We intend to continue that trend in 2014.

Rebecca Burn Callander