Lending to small and medium sized businesses fell by £723 million in the first quarter of 2014, according to new figures published by the Bank of England.
The fall in figures under the government’s Funding for Lending scheme show that firms are keener to pay back rather than build up debt.
The British Chamber of Commerce has said however that many businesses are finding that banks are reluctant to lend to them.
The Funding for Lending scheme was set up in August 2012 to encourage UK commercial banks to borrow more money and lend it onto companies at a cheaper rate.
The aim is to increase bank lending by up to £70 billion.
Neil Eames, Development Manager for the FSB Wessex Region, said: “While the decrease in lending is disappointing it does not come as a surprise to the FSB that there needs to be a greater focus by Government and financial providers on making it easier for small businesses to access finance.
“Some smaller firms, especially at the lower end of the market, will be using their own resources to fund their businesses and they’re seeking alternative forms of funding, for example peer to peer and crowd-funding.