Official data covering lending by all UK-resident banks and building societies showed that net lending to UK businesses contracted by £2.5bn in July.
Most major UK lenders have reported that the demand for credit is subdued; however, this could be due to the unfavourable conditions being imposed on SMEs.
According to the BoE report, whilst loan pricing for larger corporate clients has continued to fall, data supplied by the Department for Business, Innovation and Skills indicated that SMEs have not seen a similar improvement in loan conditions.
Meanwhile, the Federation of Small Businesses (FSB), has called for increased competition in the banking sector in order to "change behaviour in the credit market for small firms" and warned that the economy "cannot return to business as usual with current lending conditions".
John Walker, FSB national chairman, said: "During the recession the FSB has actively sought to promote lending to small businesses, be that through the banks or government-backed schemes such as the Enterprise Finance Guarantee. But despite this help, firms are still facing an uphill struggle.
"Demand for finance is at its highest as the economy enters recovery – something which the UK economy is tentatively moving through. If the government truly believes that the private sector is going to help avoid a double-dip recession, it needs to consider alternative sources of finance.
"Small firms don't have a huge amount of scope in accessing finance, unlike larger businesses. More competition in the sector will mean greater competitiveness in terms of the cost and the services provided and give access to the type of finance which large businesses are able to tap into."
The FSB criticised the main UK banks for profiteering from the financial crisis by charging high interest rates at a time when LIBOR, the inter-bank lending rate, is at an all-time low.
It has called for a range of measures aimed at easing the flow of credit to SMEs. including the creation of a "Post Bank", a state-owned or mutual bank for small firms created from the Post Office Network.
The FSB also urged the government not to sell its shareholdings in nationalised UK banks to other banks, and to introduce a series of Regional Capital Markets and Community Investment Trusts.
It claimed that these "radical moves" would not only help SMEs access credit for growth and start-up requirements, but would help provide stability in the event of future credit limitations through the main lenders.
