Banks lending to small businesses tumbled by £700m despite spite of billions of pounds worth of support from credit easing schemes on offer from the UK government and central bank.
Bank of England data shows that bank lending to small-to-medium sized enterprises (SME) plummeted on the month in April.
Survey data compiled for the SME Finance Monitor reveals that just over three quarters of SMEs are happy non-seekers of finance. Those who put themselves as potential future seekers of finance mostly blamed the dire economic climate for putting them off of borrowing. Almost half are unaware of credit easing initiatives.
"The news that lending by the main high street banks has fallen by £700m is disappointing, especially when they account for 85% of lending to small firms," said John Allan, National Chairman of the Federation of Small Businesses (FSB).
"However what the figures don't take into account is the number of businesses that are approaching alternative funders, such as peer to peer lenders, for finance.
"We have long said that there needs to be more competition and sources of finance for small firms because relying on the big five is clearly not working ... our own research shows that business confidence is up, suggesting firms want to invest but to do this many need to the finance to make it happen."
The Bank of England data showed overall net lending to business had tumbled by £3bn, down 4% on the year in April.
Chancellor George Osborne has extended the Funding for Lending Scheme, a credit easing initiative worth around £80bn, to focus it more on improving access and affordability in SME finance.
Now banks are offered bigger financial incentives to grow their lending to smaller firms, who are seen as the lifeblood of the economy and crucial to a recovery in GDP growth and job creation.
"It may be too soon to see any effects of these changes in the April data," said Citi's UK economist Michael Saunders.
"But, so far, rather than providing 'Funding for Lending', the FLS still seems to be providing 'Funding for Not Lending'."