Challenging economic conditions, access to finance and squeezed consumer spending have all knocked small business's confidence in the third quarter of 2012, according to the Federation of Small Businesses (FSB).
Data from its Voice of Small Business Index shows that confidence fell 5.8 points to -4.5 in the months July to September, the forth lowest score since the beginning of 2010.
The FSB pointed out that although the levels were disappointing, it currently sits 20 points higher than in the final quarter of 2011 when GDP returned to negative growth.
Some 2,600 respondents took part in the survey, with more than half showing resilience in challenging conditions by wanting to expand in the coming 12 months. According to the FSB, these growth intentions are being threatened by poor credit conditions and the number of businesses being refused finance.
Its report revealed that 21.6 per cent of businesses applied for finance in Q3 - down one percentage point on Q2 - however, the number being refused credit increased from 40.6 per cent in Q2 to 42.4 per cent Q3. Two thirds of FSB members believe that access to credit is poor.
The FSB said it would be closely watching the Funding for Lending Scheme to make sure that small firms are able to access cheaper finance through it as intended. Launching in August, the Bank of England promised to reduce the cost of finance for businesses by lending money to institutions at below market rates.
More than 60 per cent of firms had told the survey they found overall finance unaffordable, a figure that has increased on each quarter 2012.
The survey's findings come after initial announcements this month of a new Government backed Business Bank to shake up the finance market and boost lending to businesses.
Although the scale and timing of the proposals are still under discussion, Vince Cable hinted that the new bank would operate through alternative providers such as new challenger banks and non-bank lenders.
The FSB welcomed the proposals but cautioned that the new bank needed to be well thought out and thorough to benefit the economy in the long term.
John Walker, national chairman for the Federation of Small Businesses (FSB) said: "It isn't surprising that confidence fell back into negative territory as the recession entered its third quarter as growth flat-lines. The message is clear though - businesses want to grow and invest but they need a helping hand to do so. It is frustrating that bank finance is still difficult to get. No matter what is said about demand, more than 40 per cent of applicants have been refused in each quarter this year. This has to change if growth aspirations are to be met."