Bank of Scotland yesterday promised small businesses a cut of up to 80 basis points on the price of its loans after securing funding of £250m from the European Investment Bank.

The lender, part of HBOS, said it was working with the EIB to define how to make the funding available, including the term of the funding. It will be available to companies with fewer than 250 employees.

A spokesman said rates depended on the perceived risk of individual businesses, and added: "Say we were to offer one at 2% over base rates, using EIB funding we would be able to offer it at 1.2%."

Among other changes, the bank is guaranteeing pricing on overdrafts for 12 months from the date of arrangement. It has also agreed to maintain new and renewed loan facilities such as overdrafts and term loans for 12 months from the date of arrangement.

The bank said it would continue to link small business overdraft rates to Bank of England base rates, which fell to 3% last month, rather than the interbank lending rate. The London Interbank rate (Libor), which has typically been close to base rates, has remained stubbornly higher since the credit crunch began 18 months ago and banks became wary of lending to each other. It is now up to one percentage point higher than Bank of England base rates.

Bank of Scotland said its 180,000 business customers "will continue to benefit immediately from any cut in interest rates".

Lloyds TSB, which has an agreed takeover deal for HBOS, confirmed yesterday that it will cut its standard variable mortgage rate, which sits at 5%, by the same amount as any reduction in Bank of England base rates today. Tracker rates will also go down, from January 1.

Bank of Scotland said yesterday it will launch a helpline in early 2009, which will "provide customers with recourse to ensure that any concerns regarding their banking facilities are heard at a senior level".

The changes come after sustained pressure from the government on the banking industry to improve the supply of credit to individuals and small companies.

The measure is part of a 30bn injection of funding by the EIB into lending to small businesses across the European Union.