More than one in ten SMEs felt business conditions were so bad during the third quarter of the year that they considered calling it quits, as the much-hyped Olympics "bounce" failed to materialise.
A YouGov poll of 500 companies for insurer Zurich found widespread gloom among small and medium-sized firms, with a whopping 84 per cent worried about the current economic situation.
This rose to 93 per cent in the construction industry, 88 per cent in manufacturing and 85 per cent in retail.
Furthermore, 60 per cent of all SMEs saw little prospect of an improvement over the coming year.
More than half (53 per cent) felt the business environment had become more risky compared with Q3 2011, with only 11 per cent claiming that risk levels had declined.
Meanwhile, an overwhelming 79 per cent said that the Olympics had no impact on their business and just six per cent claimed that the Games had a positive effect on trade.
Against this backdrop, 13 per cent admitted that they had thought about shutting up shop for good between July and September, up from 11 per cent in the previous quarter. The figure rose to 25 per cent in the construction sector, up from 15 per cent in Q2.
One in six SMEs had cut staff numbers between July and September, while 12 per cent had been forced to cut wages in order to maintain headcount.
Almost a third (32 per cent) had to reduce prices because of weak demand and 63 per cent of bosses were anxious about profitability.
Yet despite the extremely downbeat assessment of conditions, many SMEs were determined to fight on using innovation and diversification.
For example, 56 per cent had expanded their activities to target new customers and 31 per cent had introduced additional products or services to their range.
Almost a quarter (23 per cent) felt ecommerce and online trading offers a good opportunity for their business, while 19 per cent were planning to tap into overseas markets to fuel growth.
Richard Coleman, Zurich Insurance director for SMEs, said, "British SMEs are clearly facing a huge amount of risk in the current climate, with narrowing profit margins, tighter operating environments and uncertain revenue streams.
"However, their focus on web-based solutions and innovation to cut costs shows a positive sense of direction and ambition to move forward - and a fifth have invested in business assets and operations over the last quarter.
"The fact that the majority of British SMEs have expanded their business activity to target new customers is reassuring. This demonstrates the agility of British SMEs; they are taking forward their own measures and diversifying their business to navigate through this difficult climate."
By Andy Jowett