Details of Project Merlin, announced this lunchtime, showed that of this £76 billion would be available to SMEs - an increase of £10 billion on last year. However, this is to be based on demand and at the market rate which could be an issue as many SMEs may still find this expensive.
The Bank of England will monitor whether or not these lending targets are being met.
The government said that these lending targets would be among the performance targets used to determine bonuses of bank chief executives.
The Federation of Small Businesses has welcomed the news that Project Merlin has come to an agreement but still believes that more needs to be done to change the structure of banking in the UK to promote growth, especially for small firms.
It said it is waiting to see how the performance matrix will be implemented and how far off the target banks would have to be before repercussions will be taken, as well as ensuring how they will make certain that the smallest firms and new start-ups will receive vital cash.
It is also concerned that the additional £1.5 billion will only go to businesses looking to receive between £2 million and £10 million in equity finance and so will not hit the smallest of businesses that need it most.
Recent FSB survey figures have showed that around 84% of small businesses are not approaching the bank for credit, either because they have already been refused or because the cost is too high. And firms which do use the banks as their main source of finance are being penalised by high interest rates - at a time when the base rate is at an all time low
Commenting, John Walker, national chairman, Federation of Small Businesses, said: "Today's announcement should not be allowed to let the Government or the banks off the hook, and is a preamble to what we hope will be bigger announcements from the Independent Banking Commission. While we welcome the intention to lend more to small businesses, we still need to see a major restructure of the sector.
"Many small firms aren't going to the banks to access finance and credit and the main problem they face is the cost of credit. Many small businesses have lost faith in the sector and are looking at other means of finance - and it is the smallest of firms that need finance most.
"To achieve robust economic recovery, the smallest firms and start-ups need to have access to finance, but today's commitments - as with previous lending targets - are unenforceable."
In addition to the lending commitment, the Merlin banks - RBS, HSBC, Lloyds and Barclays - will publish the pay of their five highest paid executives below board level in addition to the pay of board members which already has to be disclosed.
From 2012 all big banks in the UK will be forced to publish the pay of their board members plus the eight highest paid executives below board level.
This does not apply to traders working for the banks.
The Chancellor also stated that bonuses will be lower than those given in 2010.
Santander has agreed to the lending parts of the agreement but has not signed up to Project Merlin.
Shadow Chancellor Ed Balls said Osborne’s statement was an “embarrassing climb-down”, describing it as a “damp squib”.
