The survey by 3i across five European economies including Britain also shows that entrepreneurs are more positive about their own companies' prospects, but even in this area confidence among them is slipping.
Uncertainty about their economic future, which emerged last year after a period of improved confidence, is on the increase.
British small firms remain the least pessimistic of all the countries surveyed, but even in the UK businesses' confidence about their future performance has declined significantly since the last survey.
The Pan-European Economy Index, one part of 3i's survey, shows a sharp decline in entrepreneurs' views on the state of the commercial environment to -41 from -27 at the end of last year.
Regarding the commercial environment only the British give a positive, although declining, rating from +22 to +8, whereas all their Continental neighbours are more pessimistic.
The French are the gloomiest, with a decline in the commercial environment from +10 to -42.