Chris Cummings, the Chief Executive of TheCityUK, a financial services industry body, observed that these firms are reliant on their ability to receive "stable and sustainable funding for business investment".
He has, therefore, implored the government not to impose further regulations on the banking sector.
"Our report shows that when capital requirements are increased in a recessionary period, banks that cannot raise fresh capital repair capital ratios by reducing their balance sheets and cutting new lending," he commented.
Further to this, Mr Cummings called on the government to support alternative forms of finance, like peer-to-peer lending.
Earlier this month, the government gave the small business community an additional £40 million in a bid to spark further economic growth.
Through the creation of the Enterprise Capital Fund, some £25 million is being invested into smaller firms in the science, technology and engineering sectors, with an extra £15 million set to come from private investment.
Posted by Thomas Fletcher