The credit crunch is having a dire effect on smaller companies' plans to float or raise money on the Stock Exchange's Alternative Investment Market, says the top broker in the sector.

Collins Stewart, the broking and advisory firm chaired by Terry Smith, suggested that its capital markets division has probably lost money so far this year because of a rapid fall-off in fundraising by AIM companies.

It told investors: "The challenging market conditions that arose in the second half of 2007 have, as indicated in our preliminary results announcement in March, continued to date. Although the group has not been exposed directly to the credit markets, the resultant general uncertainty has had an adverse impact on our activities, particularly on our capital markets business."

Collins Stewart is widely seen as the leading adviser to companies on AIM. It raised £1.3 billion of funds for AIM companies last year, handling 18 initial public offerings and 27 rights issues or other types of secondary fund-raising.

The capital markets division had operating profits of £21.7 million in 2007, which was almost a third of the group's total operating profit of £64.7 million. But even that was well down on the £28.3 million made by the division in 2006 when it accounted for more than half of total profits.

So far this year, the firm has handled just one IPO and no secondary raisings. It said its capital markets division had "generated very low revenues".

Total revenues across the group for the first four months have dropped by 21%, from £73.1 million to £57.6 million.

Collins Stewart today pointed out that its has diversified rapidly under the leadership of Joel Plasco, who became chief executive two years ago. It said its wealth management division had performed solidly, securities trading had been satisfactory and its mergers and acquisitions advisory business Hawkpoint had countered credit-crunch pressures by concentrating on "more modest-sized transactions where financing has been less constrained".

With more than £45 million of cash on its balance sheet, the firm said the current market conditions would offer it opportunities to add new businesses and people. This year, far from laying off people, it has recruited 50 more staff.

Collins Stewart will not be alone in suffering from the slowdown on AIM with the Stock Exchange admitting that funds raised through IPOs so far this year are more than 75% down on last year. At this stage in 2007, companies had raised £1.6 billion through 76 IPOs on the junior market against just £375 million from 41 IPOs this year.

Secondary offerings are down even more sharply.

But midcap investment bank Evolution today said that its primary business "is more active than it has been for some time".

As part of its ongoing attempt to boost liquidity on AIM, the Stock Exchange today said it will launch an independent equity research service for AIM companies thatwill be distributed to investors free.