Britain's biggest banks are demanding that directors of small businesses put up their own homes as security to obtain basic credit facilities, The Times has learnt.

MPs have been inundated with pleas from entrepreneurs to step in and demand to know why the cost of securing ordinary borrowing facilities has soared and why lenders are insisting that directors offer their homes as security for renewing a corporate overdraft.

Evidence of new punitive lending terms comes amid a row over whether Britain's banks, which have been bailed out by or have received significant assistance from the taxpayer, are hoarding capital to shore up their balance sheets instead of passing on funds to help small businesses.

Michael Fallon, the Conservative MP and senior Tory on the Treasury Select Committee, told The Times: “I have taken up specific cases where lending facilities have come up for renewal and where the bank has insisted on much more onerous terms than a year ago. In such cases, the banks will renew lending facilities only in return for a higher fee or if directors agree to put their homes up as security. My constituents have asked that I write to the bank and demand to know why.”

Vince Cable, Treasury spokesman for the Liberal Democrats, said that over the past six months he had been asked to assist businessmen with the same lending issues. “I never used to get business people coming to my surgery at all, but increasingly I am being approached to write to bank chairmen to take up various issues for them, such as credit lines, demands for unreasonable security and tougher arrangement fees. This is a role I have not been asked to undertake as an MP before now and it is a significant shift. I've gone from no business people to several a week,” he said.

Other MPs have told The Times that there is continuing confusion over which banks have signed up to specific government finance initiatives for small and medium-sized companies and the terms and conditions of such programmes.

The Federation of Small Businesses said: “This is a major concern for us. Bank managers are a law unto themselves. While the banks' chief executives might have signed off on various government initiatives designed to help small business, further down the organisation, such as branch managers, know there is a recession and are asking for an arm and a leg in security for basic funding needs. We've told our members that, if they have exhausted other avenues, they should go to their MP.”

The federation was also worried that, of the £1.3 billion earmarked by the Government in January to be disbursed by banks to help small businesses, only £60 million had been extended to companies so far.

About 90 per cent of Britain's small and medium-sized businesses use one of the big four clearing banks — RBS, Barclays, HSBC and Lloyds Banking Group.

Peter Ibbetson, chairman of business banking at RBS, insisted yesterday that the state-controlled bank had not changed its lending criteria and had increased its corporate loan book last year by 10 per cent. However, one banker from one of the four, who declined to be named, said: “The days of cheap and easy credit are over.”

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