Confidence in banks has collapsed as the lenders tighten their criteria in the financial crisis.
The bank loans freeze caused by the credit crunch has led one in ten small and medium sized entreprises (SMEs) in the UK to turn to family and friends for financing.
A poll from Close Invoice Finance revealed that around 540,000 businesses are seeking out the family loans, as pressure on balance sheets grows. Many high street lenders, who would normally have provided such loans, have tightened their credit criteria as a result of the crisis, turning many credit-worthy businesses down flat.
Close Invoice Finance also revealed that just one in 20 small firms believed that banks would continue to loan them money in 2009. Last year, this total stood at three in four.
David Thomson, chief executive of Close Invoice Finance said: "The relationship between banks and SMEs has collapsed with severe repercussions for the sector as a whole. With banks now closing their doors to SMEs, owners are relying on friends and family for financial support, placing immense pressure on these most precious relationships."
Official government figures have laid bare the knock-on effects the credit crunch has had on business output. GDP was found to have dropped by 1.5 percent over the final three months of 2008 - and many analysts expect a further output decline of three percent for 2009 as banks continue to limit their lending.
