Banks are withholding millions of pounds in compensation due to small businesses for interest rate 'swap' agreement (IRSA) mis-selling, a campaign group claimed.

Bully-Banks, which has over 2,000 SME members, said banks are delaying any redress agreed through the Financial Conduct Authority's review until consequential losses are also agreed - a process which could take "months or even years".

Jeremy Roe, the group's chairman, said: "Mis-selling victims should get back the money they have paid under the mis-sold IRSA, with interest, as soon as possible to enable them to start to repair the damage done to their business.

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"The delays are causing severe cash flow problems for the small businesses, constraining their efforts to re-invest and as a result, holding back wider economic recovery."

He said Bully-Banks was planning to step up its efforts to gain redress for SMEs excluded from the FCA review because their loans contain 'embedded' or hidden swaps and fall outside the regulatory framework.

The Herald reported yesterday that the Financial Ombudsman Service (FOS) has now reversed an earlier decision in favour of Clydesdale Bank in one such case, the provisional adjudication opening the way for a Scottish hotelier to gain full restitution rather than be held liable for a £90,000 breakage fee.

John Glare, secretary of the NAB Customer Support Group, said: "At last the FOS has recognised that our member's Tailored Business Loan has been mis-sold, despite having found previously that it was not. We have calculated that 3000 businesses were sold fixed rate loans containing embedded swaps through TBLs issued by Clydesdale and Yorkshire Banks and that 25,000 jobs were lost to the UK economy, many in Scotland, as a result.

"The Financial Conduct Authority must implement a review into the mis-selling of these loans in order to force the bank to compensate affected businesses and to prevent further job losses, business closures and bankruptcies."

Dundee West Labour MP Jim McGovern, who has raised the issue in the Commons, commented: "This decision confirms what many of the victims and the experts have been saying.

"I hope this will now lead to help being offered to the many victims who so far have been ignored."

Mr Roe said the all-party parliamentary group of MPs would press for a second Westminster debate on the issue.