Almost two out of three businesses seeking bank finance in the past year have been turned down, often forcing them to fund their firms with credit cards, new research has revealed.

A study by the Institute of Directors showed one in four firms had tried to access finance from their banks, but almost 60% had their application rejected.

The survey of more than 1,000 company directors contradicted claims that lending demand was being met by the banks, said the report.

The IoD said of equal concern was that promised Government support in the form of the Enterprise Finance Guarantee was not getting through.

IoD director general Miles Templeman said: “The fact that over half of all businesses seeking finance last year were turned away by their banks is totally incompatible with the banking sector’s position on the state of lending in the UK.

“What is even more concerning is that having been rejected, 83% of businesses are not receiving information about the alternatives available to them, including the Government’s Enterprise Finance Guarantee.

“It seems that more businesses are turning to forms of unsecured finance, such as credit cards to get them through their short term spending needs. The low interest rates on credit card balance transfers may partially explain the increasing use of this form of finance, but any contraction in credit card finance could see significant price hikes, adding to the already grave difficulties that many businesses are having accessing funds.”

Shadow Chief Secretary to the Treasury Philip Hammond said: “This research makes a mockery of Gordon Brown’s claim to be giving real help now to businesses and to have extracted legally binding guarantees from the banks to lend more in exchange for taxpayer support.

“Thanks to his incompetence more businesses have gone to the wall in this recession than in any other, while many more are being deprived of the credit they need to invest and create the new jobs we need for a sustainable recovery.

“Conservatives would use Government guarantees to create more diverse sources of affordable credit for businesses, building on our proposals at the beginning of the recession for a big, bold and simple National Loan Guarantee Scheme.”