Business Secretary Vince Cable has issued a warning to banks that penalties may be imposed if they continue to fail to provide loans to good businesses.

Cable's business department, along with the Treasury, is proposing an extension of the Enterprise Finance Guarantees (EFG) beyond their current expiration date of March 2011. The EFG was created as a temporary measure to improve lending to SMEs, who have found it increasingly difficult to obtain credit, by providing government guarantee on loans to businesses.

Statistics on EFG backed loans suggest that they have fallen by as much as 23% in the 6 month period ending in March. The amount of money available through the scheme was increased from £200million to £700million last month by the coalition government as they stress their commitment to helping SMEs.

Banks now face the threat of sanctions similar to those imposed on the part-nationalised banks RBS and Lloyds were penalties were brought in on executive bonuses if the banks failed to improve commercial lending.

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