SMALL rural businesses are being hit hard by the accelerating rate of bank branch closure programmes, says a report.

The total size of the branch network has halved to just over 8,000 branches over the past 25 years – and is set to halve again in the next decade, it warns.

Small business access to banking and productivity is already being damaged, says the report by the Federation of Small Businesses.

FSB national chairman said Mike Cherry: "The rapid pace of bank branch closures across the UK presents some very real and tough challenges for small businesses."

Owners of small businesses highly valued the face-to-face interaction they received in-branch – particularly when making complex financial transactions, said Mr Cherry.

Local staff often had a greater understanding of their business and the local economy.

"In addition, many of our members deal heavily in cash and cheques and need access to over-the-counter banking facilities on a regular basis."

The full report, “Locked out: The impact of bank branch closures on small businesses”, can be downloaded here.

Mr Cherry said small businesses are keen to embrace the opportunities of the digital economy – some 94% of small businesses already used internet banking.

But barriers towards digital inclusion – such as unreliable broadband connectivity, and a lack of confidence in using digital services – created serious challenges.

These were just some of the reasons which explained why the protection of in-branch banking was so important for financial inclusion.

"We believe there is a sensible middle way.

"Our research highlights as good practice, those banks incorporating new technology in-branch, in order to both develop their digital offerings and better meet customer needs."

The FSB is calling on the government and the banking sector to improve small business awareness and confidence in the Access to Banking Protocol.

Put in place in March 2015, the protocol was designed to ensure that customers were offered alternative ways of banking in their local area, should a branch close down.

But a series of UK-wide small business focus groups organised by FSB revealed extremely limited awareness of the protocol.

The British Bankers' Association, which represents high street banks, said it was working with customers and communities to minimise the impact of branch closures.

Its protocol ensured customers still had banking services close at hand if a branch closes.

The protocol agreement meant communities were be given fair notice of any closure and clarity about the alternative places and ways to bank.

The agreement also commits the industry to making sure there is the right support to help customers use internet or mobile banking.

The FSB said banks were increasingly referring customers to their nearest Post Office counter as an alternative provider of banking services.

But sometimes banks provided inaccurate details of Post Office branches which had either closed or moved and had not properly investigated the range of services available.

To overcome this challenge, the FSB is calling for the creation of a standardised, high-quality service across the Post Office network.

It says this would help to smooth the process for banks to refer more customers on to their local Post Office when a bank branch closes.

Mr Cherry said: "The only way to fully assess which areas across the UK are most severely affected by local bank branch closures is through effective monitoring.

But this cannot happen while banks continue to publish limited data on both branch closures and small business' access to banking services.

"We believe there needs to be a much higher level of transparency whereby banks would provide details of branch closures to a government run register on a continuous basis."