The Federation of Small Businesses (FSB) has issued a warning that ‘The on-going credit squeeze is becoming critical’ after it has been revealed today that four out of ten small businesses are still being turned down when they apply for business loans.

The FSB who interviewed 2,850 small businesses found that 41% of them who applied for loans in the last 3 months had their applications refused. The figures were revealed just a few days after the Bank of England & the Treasury announced emergency plans to pump more money into the economy.

£140billion is to be made available to the banks in a bid to shore up the banking system, with more being made available in the next year if the banks agree to start lending more to small businesses. 1 in 5 businesses interviewed blamed the lack of willingness from banks to provide loans as the main factor preventing their business’ growth.

The aim of the economy bolstering funds is to try to make sure small companies and people trying to start new businesses have access to the money that they need to sustain and improve their businesses, which in turn will help the economy.

The business lobby group said the credit squeeze will reduce new job creation and ‘further set back the UK’s struggle to emerge from recession’.