The major banks are likely to keep lifting interest rates for small and mid-sized business clients in a bid to recover funding costs.

The hikes will be another hurdle for the sector, which continues to be weak. Many small and medium businesses have found it difficult to obtain financing over the past two years as revenues have declined.

Findings of a joint review of lending to small and mid-sized businesses by investment bank JPMorgan and finance consultants Fujitsu Australia show that the large banks have significantly firmed their grip on the sector as smaller companies dealt with funding constraints, or pulled out of the market altogether.

JPMorgan's Scott Manning said banks' average funding costs would keep soaring over the next five years. This is likely to drive rate hikes for small business beyond official moves in the cash rate.

''As the cost of funding stays high for the banks themselves, they'll be looking to pass on that burden to the sector,'' he said. ''This means the rates for this sector will remain quite high''.

With lending to small and mid-sized business drawing less political scrutiny, the major banks are finding it easier to execute out-of-cycle interest rate increases.

While there were indications that higher interest rates paid by such businesses had contributed to subsidising bank mortgage books at the onset of the credit crunch, more recent rate moves translated to higher credit costs and repricing of risk, according to Mr Manning.

His comments were in response to a green paper released yesterday by Financial Services Minister Chris Bowen canvassing whether small-business borrowers should be entitled to the same level of protection given to consumers under credit regulations.