The Federation for Small Businesses (FSB) in East Anglia says the latest figures show the Government needs to do more to encourage lending.
Bank of England figures for Funding for Lending Scheme show that lending contracted by £2.4 billion in the three months to February.
Peter Martin, regional treasurer for the East Anglia branch of the FSB said: “The figures continue to reflect the difficulty that small firms experience in getting finance.
“It is clear that Funding for Lending is benefitting the mortgage market more than the small business sector, so we would encourage the Government and the Bank of England to see how new and challenger banks can use the scheme better.
“Many new banks coming into the market will only lend to small firms so they can use this funding to attract new customers and become larger.
“The fact that lending has fallen shows just how important it is for the Government to use the Business Bank and the Financial Conduct Authority to create more competition in the sector, through non-bank finance routes as well as traditional banks.”