Vital developments in Brighton and Hove are on ice because banks are refusing to fund even the most feasible projects.

The situation could restrict the city's ability to return to economic growth once the recession has ended.

Several developers around the city say they have secured planning permission for a range of housing and commercial property schemes but that access to finance is proving elusive.

Latest figures from the Bank of England revealed business lending fell by a record £8.4 billion in July despite billions being pumped into the economy through its quantitative easing programme.

The 1.7% fall in lending to private non-financial corporations is far worse than June's 0.2% decline and the biggest since the Bank's records began in 1997.

James Oliver, of findandbuild.com, admits he has been “winging it” with recent projects because of the lack of support from banks.

In 2006 he was lent 100% of a £200,000 project to convert a building in Brunswick Street West, Hove, into flats but said recently banks had only been willing to put up 65% of the amount needed at most.

At the moment Mr Oliver's firm is undergoing four projects involving seven properties.

He said: “It has left me sailing tremendously close to the wind. We have had to juggle things around and take some money from other projects.

“It's like robbing Peter to pay Paul and making everything a lot more uncomfortable.”

Mr Oliver believes the problem will get much worse if interest rates rise next year but banks continue to hoard money.

He said: “The existing anger towards banks will get much greater. There will be more people living on the streets as they cannot afford their mortgage repayments.”

One Brighton and Hove developer, who asked not to be named, said the collapse of Northern Rock had left his plans in limbo as his bank had developed cold feet about his proposals and cut back the amount it would lend him.

He said: “We got involved with the purchase of a significant site in central Hove.

“The bank lent us the money to buy the land and gave every indication they would make development finance readily available.

“There is nothing wrong with the scheme other than the lack of finance, which has been time consuming and frustrating.

“This will have a long-term detrimental effect on the whole economic climate of the city. In two or three years’ time the lack of good quality, usable commercial space will be a real problem.”

Phil Graves, of Graves Jenkins and vice-president of Brighton and Hove Estate Agents, also sits on the city's Business Retention and Inward Investment Board.

He said: “The city council and other business stakeholders are very conscious of the fact that existing businesses that are doing OK in the recession need to be provided with the right premises if they are to grow.

“Otherwise we will lose them and once they go they might not come back. We need new development to encourage new businesses as well.

“You will not get state-of-the-art companies moving into Brighton unless we have state-of-the-art premises.”

Max Pollock, the commercial agent at Carr & Priddle, said another problem is that activity in the commercial market is currently very slow.

He said: “The guys who want to buy are cash rich and are looking to pick things up cheaply while the people who own the properties are wanting to sit on things because interest rates are so low.”

This lack of supply and strengthening demand could push up rents on commercial property in the near future, Mr Pollock added, which could put retailers and other businesses in a difficult position as they try to recover from the recession.

Simon Forrest, the director and head of commercial property at Oakley estate agents in Brighton, agreed that bank lending had been a problem but added it was too simple just to blame them for the lack of commercial development.

He said: “You have to look at developments on a case by case basis. Some schemes would be very tight financially even if the banks were lending.

“To just say it is the bank's fault is over-simplifying a very complex issue. Some schemes will not work because the developer paid too much for a site in the first place.”

Brian Capon, of the British Bankers Association, the trade body for the banking industry, said banks were lending but admitted they were being far stricter about how much and who to.

He said: “They are looking at a company's track record, the amount they are being asked to lend and the ability of the company to generate sufficient income to meet repayments.

“The other thing they are asking is if there is a plan B. A developer can say everything is going to pick up again in 18 months but what if it doesn't?”

Mr Capon believes lending will return to pre-credit crunch levels but added that no one can say when that might be.

He said: “Perhaps the banks are taking a more pessimistic view but we don't know what is round the corner.”