The Government today announced the creation of a forum for small businesses to address the problem of curbs on lending.
Chancellor Alistair Darling and Business Secretary Lord Mandelson met chief executives of leading banks at the Treasury.
Speaking outside the meeting, Lord Mandleson promised to help "tease out the problems" small firms were having with bank loan arrangements.
Lord Mandelson said: "What we clearly need to do, given the concerns amongst small businesses and the tensions there, is to create a forum to bring them together.
"The Government is going to do that in the next couple of weeks so that where there are issues about availability of lending and curbs on lending we can thrash these out and tease out the problems.
"There is a willingness to make sure that we get through these very difficult times together."
He continued: "The banks don't want to pull the plug unnecessarily on small businesses.
"They want to help where they can but the banks at the same time are facing difficult conditions of their own.
"The Government can play a role in securing better understanding of the issues between smaller businesses and the banks and that's what we are going to do."
Small firms have raised concerns about bank loan arrangements being changed in response to the credit crunch.
Prime Minister Gordon Brown's spokesman said he understood Mr Darling and Lord Mandelson were discussing with banks how their commitment to restore the availability of small business lending to 2007 levels could be implemented.
In a regular daily briefing, the spokesman said: "One of the conditions that we agreed with the banks at the time of the recapitalisation was that the availability of credit would be maintained at 2007 levels."
Asked if the recapitalisation funds could be withheld if banks failed to make loans available at a competitive rate, the spokesman said: "We have made a commitment to the recapitalisation of the banks, which is a very firm commitment.
"The banks themselves voluntarily agreed to the conditions that were attached to that."
The FTSE 100 Index initially held firm after global recession fears caused further heavy falls for Wall Street and Asian markets overnight.
But it gave out early gains and was down 70 points from the start of the day.
The Dow Jones Industrial Average finished almost 6 per cent down, while Japan's Nikkei recovered from a 7 per cent drop earlier in the session to finish 2.5 per cent lower.
The Footsie lost more than 4 per cent of its value yesterday after Mr Brown's admission that Britain was likely to go into recession.
A day ahead of the release of GDP figures expected to show the first quarter of negative growth since 1992, trading remained uncertain in London with experts increasingly gloomy about the prospects for the economy.
David Kern, economic adviser to the British Chambers of Commerce, said: "The GDP figures will almost certainly show negative growth in the third quarter of 2008, the first decline since 1992. We expect the decline to be 0.3 per cent, although one cannot rule out a worse figure.
"While the news is grim, it's important not to exaggerate the gloom, which would unnecessarily depress confidence. The UK is not in a severe slump and we can still avoid the worst. Recent retail sales figures for September were not as bad as predicted.
"It is now vital for policy makers to focus on alleviating the worst consequences of the downturn. We expect the Monetary Policy Committee to cut rates to 4 per cent in November and we would like to see some easing in business taxes."
The latest falls came as the White House announced a US-hosted world summit to discuss the economic crisis would be held in Washington on November 15.
Britain is not technically deemed to be in recession until two successive quarters of negative growth have been recorded - something which cannot take place until the next round of quarterly figures are released in January.
But following Bank Governor Mervyn King's recession warning on Tuesday, the Prime Minister was forced to concede yesterday that myriad expert predictions were almost certainly correct.
Shadow business secretary Alan Duncan said: "The Government's pledge to return lending to 2007 levels is mired in confusion, with ministers contradicting each other at every turn. It so vague as to be meaningless - and they know it.
"Meanwhile, it's becoming all too obvious that lending to small businesses is drying up. Even now banks are cancelling overdraft facilities at two days' notice and driving many good small firms to the wall.
"This exposes the growing gap between the Government's rhetoric on the financial crisis and the reality that is now hitting people on the ground.
"The truth is that Mandelson's back - and so is the spin."
John Wright, national chairman of the Federation of Small Businesses, said: "We look forward to the opportunity to put forward the views of our 215,000 members to the new forum on lending to small businesses.
"It is very important that the behavioural inconsistencies of branch managers in the high street branches are ironed out, otherwise any good coming out of this meeting will come to nothing."
Downing Street said the Government expected the banks to honour their commitment to restore the availability of lending to 2007 levels.
"The banks have entered into this agreement and we expect them to deliver," the Prime Minister's spokesman said.
David Frost, director-general of the BCC, cautiously welcomed Lord Mandelson's plan for a small business lending forum.
"If its purpose is to hold banks to account and provide a supportive and worthwhile dialogue, then Lord Mandelson's announcement for a new small business lending forum is a good thing," he said.
"But if the group ends up around a table talking instead of showing real leadership and taking action, then it will be meaningless.
"It's the Government's job to ensure that this group has the teeth to really make an impact."