By Jason Theodorou

Business Secretary Vince Cable has called for banks to lend to 'good British companies', and suggests that dividends and bonuses could be utilised as part of a 'carrot and stick' approach to boost lending to businesses. Dr. Cable has laid out his ideas in a joint consultation paper with the Treasury.

Dr. Cable told the BBC: 'There is a combination of sticks are carrots. The carrots include more guarantees and different kinds of guarantees. The sticks could include strengthening, widening the agreements we've already got'. He said in his paper that a lack of accessible finance could prevent the acceleration of the recovery,

The paper, called 'Financing A Private Sector Recovery', suggests ways to stimulate venture capital and 'business angel' investment across the board. It also proposes regional stock exchanges in cities including Birmingham and Edinburgh, and government loan guarantees under a National Loan Guarantee Scheme.

Lending agreements brought in for part-nationalised banks such as the Royal Bank of Scotland could be applied to other banks, including limits of executive salaries for ineffective efforts to boost lending. All proposals must be brought in by 20 September.

The Forum of Private Businesses has said that small firms were struggling to secure loans. In the trade organisation's 'Economy Watch' survey, it found that there was a demand left unfulfilled by banks which was steadily increasing. The FPB said that the cost of secured loans stood at 4.5%, far higher than the Bank of England base rate of 0.5%. Small businesses have reported an increase in bank charges in areas including credit cards.

John Walker, chairman of the Federation of Small Businesses (FSB) said that banks needed to 'refrain from applying charges and stringest conditions, to otherwise reasonable requests for small amounts of money'. He said that the Banking Commission could break up banks to create more banks.