Small businesses could suffer as banks, reacting to the credit crunch, scale back credit facilities and put up overdraft charges.

The Forum of Private Business (FPB) has said that reports of restricted lending from the high street banks could hit small firms at precisely the time they need funding the most.

The FPB pointed to research carried out by Cambridge University which showed that, although the number of small firms seeking finance in 2007 increased only slightly from 2004, when the previous survey took place, the level of funding required soared from an average of £82,000 to £470,000. A figure, the FPB added, that is likely to have increased markedly over the past year.

The small business group also highlighted concerns over the merger of Lloyds TSB and HBOS, a move that could see a diminishment of the services available to small enterprises.

Noel Guilford, the FPB’s chairman, said: “It appears that, just as the funding requirements of small businesses are increasing because of the economic downturn, banks are cutting back on both the level of facilities they provide and the services they offer.

“Accessing finance in order to maintain a healthy cash flow is always a key issue for small firms – now it has become a matter necessary for survival as much as growth.”

Mr Guilford added: “The FPB is urging banks to recognise the difficulties small businesses are facing, and firms to take steps to protect themselves, such as seeking alternatives to traditional funding streams.”

The FPB identified reduced borrowing capacity, a cut back in account servicing, branch closures and the calling in of loans as the main banking worries confronting small businesses.

Ramped up bank charges and tighter lending facilities may mean that small firms will struggle to access finance, which is why the FPB said it is advising businesses to make the most of the cash they have at their disposal.

Mike Benson, the FPB’s tax adviser, commented: “Finance will come to be the key issue over the next 12 months. As well as normal business loans, many small businesses have relied on remortgages and even credit cards for funding.”