Small and medium enterprises (SMEs) may find that their business innovation is "stifled" in 2008 if the current financial conditions continue.

Business Link, a service which provides the information, advice and support needed to start, maintain and grow a business, has warned that ventures that are "riskier" but "potentially more profitable" may be unable to go ahead this year due to the credit crunch.

Andy Berrow, senior business advisor for Business Link, said: "The increase in interest rates earlier in the year, combined with a tightening of borrowing criteria, has had an effect on the ability of SMEs to borrow new money although there is less evidence of existing lines of credit being cut.

"Whilst this lack of new funds has not, generally, fed through into business performance as yet, the traditional slowdown of cash receipts caused by the holidays at the end of the year may result in cash crises in some instances."

A report for CBI published in November 2007 revealed that more than a third of those in charge of SMEs were concerned about the effects of the global credit crisis on funding for their businesses.

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