An Oireachtas Committee has heard that one third of small businesses are behind with their repayments on loans.
Irish Banking Federation CEO Pat Farrell told the Committee on Enterprise, Trade and Employment that the banks have to factor this into their calculations in assessing other loan applications.
He also said as the economy has shrunk by 20%, it is clear that banks won't be able to support all small businesses.
Mr Farrell also said that €12 billion was committed by banks for new credit to businesses over the next few years. He said that a loan guarantee scheme was being actively looked at by Government and that he believed a decision would be made soon.
Committee chair, Labour's Willie Penrose, claimed the Department of Finance was holding up the loan guarantee scheme.
