SCOTLAND'S business sector has described the government's bailout plan for banks as "momentous and bold" but warns that financial institutions must act quickly to restore normal lending levels to avoid a further collapse of the economy.

As part of the package, the Bank of England will be able to buy up to £50bn worth of stakes in companies in all sectors of the economy. A recent survey showed that one in four firms was having to turn new business away because banks had refused to offer finance.

David Lonsdale, assistant director of the Confederation of British Industry (CBI) Scotland, said: "This is a momentous day, but extraordinary times demand extraordinary policy solutions. The viability of ordinary businesses was under threat, putting jobs and investment at risk.

"The government needed to be bold and it has been. These measures are the essential precursors for economic stability which will expand the availability of credit, open new channels of credit and get the economy working again."

Colin Borland, spokesman for the Federation of Small Businesses in Scotland, said the government had acted "decisively". He added: "The banks are running out of road, so this bailout has to work. There really is no alternative. Let's hope this is the final jolt that finally gets them lending.

"We're advising businesses to be proactive and confident, to continue with their plans to expand and grow. If the bank has knocked your firm back for funds recently, go back to them. These institutions must appreciate just how much the taxpayer has done for them. They need to start repaying the faith we have shown in them."

Frontline businesses agreed it was "absolutely vital" that banks reintroduce more- relaxed lending policies.

Stephen O'Neil, who owns Newton Management, a Glasgow-based property management and letting agency that employs 14 people, said successful businesses like his were having to put growth plans on hold.

He said: "After seven years of hard work and expansion, it is worrying and frustrating that our plans are being stifled by the lack of lending. At the moment there is zero growth in our business.

"We are a successful, viable business and a very good bet for the banks, but when we run new ideas past them, they just don't seem interested.

Glasgow-based businesswoman Fiona Hamilton, a commercial property expert and co-owner of Fifi & Ally, which recently took over the Beanscene chain of coffee shops, said she'd like to see the government, rather than banks, distribute the money.

"It's time for the banks to put their money where their mouth is and stop blackmailing the business sector, although I believe the government would perhaps be more successful in helping SMEs by setting up its own bank and lending direct to firms."

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