EFFORTS to repair the relationship between the banks and small businesses need to go further, according to research by the Forum of Private Business (FPB).

Its members say the British Bankers’ Associations’ (BBA’s) Business Finance Taskforce, which began operating just over a year ago, needs to do more.

Almost a quarter of the small business owners on the FPB’s cash flow and finance panel said there should be more choice between ‘traditional’ banking services and 21% wanted more access to alternative forms of funding.

Overall, 26% of respondents said they were seeking out alternative financial products – the majority of which were interested in sourcing credit outside the main high street lenders. Just 7% said they would turn to mainstream banks.

FPB senior policy adviser Alex Jackman said: “The Business Finance Taskforce produced 18 recommendations, some of which have been extremely useful – particularly in the areas of mentoring, lending appeals, finance readiness and funding for high-growth enterprises.

“But the verdict so far is that much more needs to be done to get cost-effective finance to the businesses that need it most.

“There is falling demand from small firms but that does not mean a lack of need for affordable funding. It reflects just how alienated entrepreneurs are by the restrictive risk criteria and steep costs being imposed by mainstream lenders. As a result, there are increasing signs business owners are looking elsewhere.”

The Forum is calling on banks to boost their small business customers’ confidence by improving regional infrastructures.

It said lending powers should be restored to local bank managers because they are in a much better position to judge risks than their centrally-based colleagues.

Mr Jackman said: “We also need greater competition, both between high street banks and by allowing other, alternative funders to be able to truly compete in finance markets dominated by the banks.

“These measures would drive up levels of service and bring down costs.”

Although the Government is planning to give tax breaks to venture capitalists under its Equity Investment Scheme (EIS), 43% of panellists said they would not consider equity finance. None of those quizzed considered this a preferred option for finance.

Instead, the FPB said that private lenders should be given similar tax incentives to boost lending to small business lending and increased competition.