A report commissioned by the Department of Finance into the availability of credit to small and medium-sized businesses has found that banks have taken a more cautious approach to lending.

However, the study also found that some €3.6 billion in approved overdraft facilities was not taken up by companies.

The report comes on the back of complaints by many small and medium-sized businesses that credit is tight in the current recession.

Firms claim banks are unwilling to lend, while banks, for their part, have maintained they are open for business.

As part of the Government's decision to bail out the banks, a study was undertaken to investigate these claims. It found credit policy has changed, becoming more cautious with lending practically static over the past nine months.

The Mazars Report for the department states that 'the application of credit policy has changed and has resulted in a much more cautious approach to lending'.

Personal guarantees and higher security are now sought but the report also found that the new criteria appear to be reasonable.

'Security conditions…appear to be reasonable in the context of normal commercial and business criteria,' it says.

The report also found that €3.6 billion, or 51%, of approved overdrafts for businesses were not taken up.

It also found great variation across banks. Some turned down one in three loans while other banks just under one in five. The report found that businesses in construction and real estate faced most difficulty in having a loan approved.

This report is important for the snapshot it offers into the small and medium-sized business sector. And it shows a sector clearly under pressure.

74% of the businesses surveyed reported a fall in sales, with almost half reporting falls of over 20%.

Over half of the companies have looked for credit in the past year, a clear indication of the tough times many of them are experiencing.

Lenihan welcomes report's 'clarity'

Finance Minister Brian Lenihan has welcomed the Mazars Report, and says it has shed light on the current status of credit flow.

In a statment, Mr Lenihan said: 'The report confirms that while some SMEs are facing significant challenges accessing credit, and the sector in general is more conservative in its borrowing, nevertheless new lending is still taking place.

'The proportion refused credit, especially in certain sectors, remains a concern for Government,' he added.