Britain's clearing banks today speeded up their promises of more help for small business as the Government dropped plans to force them to lend more under new legislation.

Bank of Scotland, part of Halifax owner HBOS, today said it was finalising negotiations with the European Investment Bank to secure £250 million of extra funding to support its 180,000 small- and medium-sized business customers during the economic turmoil.

The move follows Bank of England Governor Mervyn King's warning last week that getting the banks to restart business lending is "more important than anything else at present" if Britain is to avoid a "steep recession".

The Bank of Scotland's £250 million facility is part of a £7 billion package for small business announced by Chancellor Alistair Darling in last month's Pre-Budget Report.

He said an extra £4 billion of funding is available from the EIB for British business. But later it emerged that only £1 billion of what is in effect EU taxpayers' money will be available this year.

Lloyds TSB, chaired by Sir Victor Blank, today announced what it called a new charter for its 600,000 small business customers. The group is in the process of taking over HBOS as part of the Government's £17 billion bailout package for the two banks.

Bank of Scotland's managing director of commercial lending, Adrian Grace, said: "We are confident these measures will make a real difference to our small-business customers." The bank said the EIB funding will be made available to firms with fewer than 250 employees.

It will lend at a significant discount of up to 0.8% on standard small-business rates, but is still defining the terms and conditions of such loans with the EIB. The bank also laid out a new pledge to businesses with turnover of less than £1 million a year.

It promised to hold new overdraft rates for 12 months, link them to base rate not Libor and let them run for 12 months without being repayable on demand. Similar pledges were made by Lloyds TSB, which said it will agree any reasonable small-business requests for short-term finance to help with specific cashflow problems.

Royal Bank of Scotland - now majority-owned by the Government - has already promised measures to support its small-business customers.