Directors of small firms are still being told to put the family home on the line if they want bank finance, Business Voice WM has claimed.

And, in a submission to a joint Treasury and Department for Business, Innovation and Skills consultation on Financing A Private Sector Recovery, it says the banks' near boycott of the sector may continue indefinitely.

It urges the Government to fill the gap by expanding community development finance institutions (CDFIs) like Aston Reinvestment Trust, which covers Birmingham and Solihull, and the Black Country Reinvestment Society, both of which typically offer small scale loans of up to £50,000.

The plea comes in the wake of Business Secretary Vince Cable reading the riot act to banks over lack of lending to small firms - the latest Bank of England figures show business lending is down for the fifth month in a row.

Mr Cable warned banks of "potential sanctions" such as an increase in the levy and said they would be looking at a "train crash" if they awarded themselves big bonuses.

The BVWM submission states: "We suggest that the banks will not regain an appetite for risk for some time, if ever.

"If they do restart affordable sub £50k lending then micro-businesses will again be able to start, grow and prosper. If they don't, or until they do, then we believe that CDFIs are the only proven, capable alternative for providing finance to the smallest, under-capitalised businesses."

In a scathing assessment of the banks' failure, post the 2007/8 meltdown, it goes on: "We are concerned that despite the statements from the banks and Government that normal bank lending will be on track, normal bank lending from all high street banks has not resumed and this is a drag on regaining confidence in the Midlands economy.

"Despite the introduction of the Enterprise Finance Guarantee, small firms are still being asked to use their homes as security."

Urging an extension of EFG cover, it continues: "Presently, the EFG scheme is underwriting around 9.5 per cent of all potential losses so it is understandable that banks may believe they have little option but to obtain personal guarantees from company directors.

"The last Government claimed the EFG would avoid any potential loss of the family home. In reality, though, family homes have been put up as security.

"While directors will have much to gain from their businesses prospering from access to finance, by putting the majority of the risk upon individual directors rather than the traditional approach of sharing risk between the lender and borrower, the likelihood is that many good going concerns will rather end the business to protect the family home and this will be to the detriment of employees, the supply chain and the wider economy."

The 9.5 per cent figure was too low and had to rise, BVWM insisted.

And, for those who could get finance, arrangement fees were out of control.