Forty small businesses go under every day because of dwindling orders and a lack of finance.

As closures hit 280 a week, up from only 40 before the credit crunch hit, the Federation of Small Businesses (FSB) called yesterday for a £1 billion small-business survival fund that would be partly funded from Europe.

The FSB is also pressing HM Revenue & Customs (HMRC) to show forbearance to companies that have trouble paying VAT or corporation tax to avoid more closures.

The calls come after a series of measures from the Government to try to bolster small businesses, which are finding it increasingly difficult to get money from banks, are suffering late payment from bigger customers and are facing reduced business from the economic slowdown.

Today Alistair Darling and Lord Mandelson, the Business Secretary, will meet the chief executives of the leading banks to press them to lend to smaller businesses on terms similar to those of last year. The banks that have been recapitalised by the Government have pledged to lend to small and medium-sized businesses.

Ian Pearson, the Economics and Business Minister, told the Commons yesterday that he expected other banks to match the pledge of Royal Bank of Scotland, Halifax Bank of Scotland and Lloyds TSB.

The FSB laid out demands for a six-month £1billion fund to help to support Britain's 4.7million small companies. If collapses continue at their present rate, about 7,200 companies will have closed down in six months.

The federation wants a survival fund to replace the existing small firms loan guarantee scheme and for it to be funded by the Government and by the European Investment Bank.

John Wright, the FSB chairman, said: “A lot has been made of the rescue package for big banks, but small businesses are at the heart of our economy, employing just under 60 per cent of the private sector workforce. A rescue package for small businesses is crucial to shortening the economic downturn and saving jobs.”

The FSB is petitioning HMRC and Baroness Vadera, the Competitiveness Minister, to exercise lenience towards small businesses in recognition of the tough economic conditions. It is also pressing local authorities to relax the collection of some business rates for companies facing difficulties.

An HMRC spokeswoman said: “In the pursuit of Crown debt, HMRC staff are trained to be supportive of businesses that are viable but may be experiencing temporary financial difficulties. Our experience is that this approach provides a better longer-term return to the Exchequer. We do, of course, need to consider the balance between supporting businesses in temporary difficulties and fairness to our more compliant customers.”

Additionally, the Forum of Private Business (FPB) wrote to the British Bankers' Association to urge its members to support small businesses through the economic downturn. Phil Orford, the chief executive of the FPB, said that the conditions of the government bailout, in terms of the commitment to small business lending, was not being implemented on the ground. His letter read: “The Government is on the record as saying, following the very public bailout for many of your members, that lending would return to 2007 levels and at realistic rates. This is clearly not the case.

“As you are aware, real interest rates on overdrafts, in particular, are as high as 15 per cent, lending facilities are being reduced or withdrawn and charges for renegotiated agreements are excessive.”

The FSB is also increasing the pressure for big companies that delay paying their bills to be named and shamed. The Government moved this week to speed up payments from public bodies to smaller suppliers and service providers. However, many big corporate names operate lengthy settlement periods.

It is estimated that small companies, on average, are owed £30,000 by large businesses. The FSB wants Companies House to be strengthened so that it could name late payers and fine companies that suddenly changed their payment arrangements. Small companies may charge interest on overdue bills; in practice, they rarely take such action because they fear that they will lose the business of larger clients.

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