A panel of lenders speaking at today's NACFB Expo said 40% of SME applications were declined on their first attempt.
But Ian Wilkins, managing director of Aldermore Commercial Finance, said he didn't believe they were all bad businesses.
He said: "It's a very worrying trend that funding lines are being taken away from SMEs.
"But I believe there are two fundamental reasons for this. One is poor quality submissions resulting in applications being declined and the other is that small businesses don't know there are alternative sources of funding out there."
Some 90% of commercial lending is done by the five main clearing banks but alternative lender share is growing.
Delegates at the show also heard from Bibby Invoice Finance, Precise Mortgages and Shawbrook Bank.
All lenders agreed the lack of confidence in the SME sector was the biggest hinderance in the market.
Shawbrook's Stephen Johnson reminded brokers that £51bn of UK funded SME debt expires in 2012 while £153bn will need to be renewed by 2016.
Johnson added: "There's no way alternative lenders can fill the void left by banks in SME lending but we are driving more business to brokers and we know there are investors out there keen to borrow."
