Figures from the Finance and Leasing Association (FLA) found that asset finance provided to SMEs for capital investment fell by a quarter in the third quarter of 2008 compared with the previous year.

Overall asset finance fell by 19% with loans of up to £20m falling by 25% as companies grew more cautious and lenders feared debt defaults.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: "A combination of weaker demand, funding issues and the increasing risk of defaulting customers led to a decline in the last quarter of this year."

At the same time, according to statistics released by the Office of National Statistics, manufacturing companies invested 15.7% less in the fourth quarter of 2008 compared to last year.

Analysts have said that the investment figures reflect companies' defensive attitudes and their inability to raise the funds to invest as the credit crunch worsens.

David Bunker, a director at Close Print, said that there was a lack of confidence among companies looking to expand and high street banks were retreating from asset financing.

Vicky Redwood, an economist at Capital Economics, said that the lack of investment would have implications on the future growth of the economy.

"If firms are not investing now they risk being left behind," she said.

Hopes that the credit crunch would ease in the 2009 have been dashed as concern continues over the health of multinational banks.

Also see: Loan scheme for small businesses unveiled

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