A boss has hit out at the “broken relationship” between small firms and banks amid demands for more competition for lending.

Roger House, chairman of the Kent and Medway Federation of Small Businesses, said that while more firms were cautiously optimistic about their prospects for the New Year, there were still concerns about finance.

The latest survey found that businesses were “unconfident” that banks would lend to them. However, while the number of applicants for loans had fallen, a higher proportion were accepted.

Mr House added: “The fact that fewer firms applied seems to corroborate this and further highlights the broken relationship between small firms and the banks.

"The small business bank needs to address this by opening up competition, especially if small firms are to bring forward investment plans.”

Mr House said it was still tough for small firms, and the Chancellor’s Autumn Statement last month (Dec) confirmed it was going to be tougher for longer.

However, small firms still wanted to grow their business and invest. “In Kent, our FSB Small Business Autumn 2012 Barometer revealed a greater proportion of small businesses in the county increased their sales, profits and staffing in 2012 and that a greater proportion (38%) forecast improved prospects for 2013.”

Some of the Chancellor’s measures would help, he said, especially raising the tax-free investment limits to £250,000.