High Street companies throughout Croydon could collapse from lack of funds if big banks hold on the lending market is not broken, according to the Federation of Small Businesses(FSB).

More than 40 per cent of small businesses use a bank loan, overdraft, leasing or factoring for major credit purposes in order to carry on their day-to-day work.

But companies using banks as their main source of finance are being penalised by high interest rates at a time despite the Bank of England base rate being at an all time low.

The FSB is lobbying the Government to take radical steps to open up the finance market for small companies, including turning the post office into a state-owned bank and refusing to sell its shares in banks to other finance houses.

It also believes credit unions and regional stock exchanges could play a major role in helping small businesses get the finance they need to survive.

Jeremy Frost, Croydon Branch Chairman, Federation of Small Businesses, 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.”