Hundreds of small companies will fold by Christmas if the government cannot deliver rapidly on its pledge to increase bank lending to the sector, business leaders warned ministers at a meeting in London on Wednesday.

The squeeze on banks’ lending to business dominated the inaugural meeting of the Regional Economic Council, set up by Gordon Brown to help mitigate the impact of the recession. Alistair Darling, chancellor, and Peter Mandelson, the business secretary, were warned by business representatives that the government’s bail-out of the banks has yet to yield any relief for cash-strapped companies.