Businesses in the UK are struggling to avoid liquidation and company directors face bankruptcy as banks tighten their grip on business loans, according to Mark West of London-based Berley Chartered Accountants.

Unsecured borrowing is becoming increasing difficult to obtain, so directors are being faced with the dilemma of pledging their personal assets or risking their business collapsing.

"The credit squeeze has given lenders the opportunity to compel SME’s and specifically the directors, to provide personal guarantees to secure the corporate borrowings of their business, clearly at a time they need the most help. Higher costs, a slowdown in the economy and rising inflation is causing more companies to suffer, with cash flow the most critical factor in their survival," adds West.

West believes that the credit squeeze will continue to threaten the existence of businesses and is unlikely to abate in the foreseeable future.

This comes as welcome news for private equity firms, which are enjoying the fact that businesses are being forced to lower their price tags in an effort to attract investment.

Matrix Private Equity Partners chief executive said: “The slowdown in economic growth will feed through to ideal conditions for buying into companies at lower prices. The crunch is already restricting the easy availability of bank finance, and we expect the supply of risk capital to become more restricted. We will continue to exercise our long-term investment programme, with prices becoming more attractive."