The European Investment Fund (EIF), the EU agency responsible for the provision of capital to small and medium-sized enterprises, has frozen commitments to UK-based venture funds, Business Insider Nordic reported on Friday.

The firms affected by the decision include venture capital firms Seedcamp, Dawn Capital, Hoxton Ventures and Episode 1 Ventures.

The EIF is reportedly going to honour its existing commitments, but will not provide capital to any firm that has applied or was in the process of applying following the UK’s decision to leave the European Union.

The fund will also not expand its €250m ($280m) angel investment initiative, the European Angels Fund (EAF), to the UK. The EAF is co-investment vehicle that matches commitments from angel investors, allowing the individuals to keep the majority of the profit.

The EAF is currently available in seven member states and was due to expand to the UK with €50m in capital this year, but this will now not go ahead.

The EIF for its part has denied placing a moratorium on lending to UK projects, though unnamed sources have told Business Insider that the EIF has put firms into an “indefinite” due diligence process that essentially means they will have to close their funds without the EIF.

Simon Murdoch, managing partner of Episode 1 Ventures, said: “Until Theresa May said that we would trigger Article 50 [to leave the EU], in all that time, the EIF engaged with us in a fair and diligent way. Then after meeting them in January, they just went silent. Then we triggered Article 50 and the EIF [said] it was not going ahead with us.”

“We suspect that if [the UK] had not triggered Article 50, we would have had a much better chance. We cannot be sure. But we think leaving the EU and Article 50 was instrumental in us being turned down.”

While the Conservative party this week pledged to make up any shortfall in EIF funding by repatriating funds previously allocated to the European Investment Bank and handing them out to firms through the British Business Bank, there is scepticism this will work as the EU is demanding an exit settlement of up to €100bn that would wipe out those funds.

Murdoch added: “There is zero chance of that happening. The Tories saying this are in cloud cuckoo land.”