The business secretary said viable businesses are being deprived of credit and working capital by institutions that are largely owned by the taxpayer.
Mr Cable stated that while banks are claiming there is no demand for credit, this assertion is not true.
"If the bar is set too high, of course no-one is willing to jump," he commented.
Mr Cable added that the unwillingness of banks to lend to SMEs could stifle the UK's economic recovery.
This, he stated, could end up rebounding on the banks in the form of bad debt.
Mr Cable was speaking at the Cass Business School in London in his first major speech since becoming business secretary last month.
He recently stood down from his role as deputy leader of the Liberal Democrats in order to focus on his new job in the Cabinet.
By Tony Aynsley