The business group ISME says 40% of small and medium-sized companies in Ireland have reduced their employment levels in the past year.
In a report out today, the organisation also says sales and orders are at their lowest level in years.
It says 60% of its members are feeling less confident about their future prospects, leading to a reduction in investment in the SME sector.
Meanwhile, the Small Firms Association is calling for a special government fund to help its members cope with the economic downturn.
The association, which is holding its annual conference today, also wants the Government to freeze the prices for services that state agencies provide to the small business community.