HBOS said the funding would enable Bank of Scotland to provide lending facilities to its customers at a significant discount - up to 80 basis points - to standard rates and said it was working with the EIB to define the terms and conditions of how this funding will be made available to its SME customers.

HBOS also said it would guarantee pricing on Bank of Scotland small business customer overdrafts for 12 months from the date of arrangement for new loans and renewals.

It added that it would maintain the link between small business overdraft rates and the base rate of interest rather than LIBOR, the rate at which banks lend to each other.

Small business customers will continue to benefit immediately from any cut in interest rates, said HBOS, which added that it would maintain overdraft facilities for 12 months from the date of arrangement or renewal and will not make them repayable on demand.