Bailed-out banks have been accused of turning down almost six out of ten credit applications by small firms.
A study found just 5% of bosses are satisfied that government is doing enough to ensure money is being lent to companies.
Isme, the Irish Small and Medium Enterprises Association, said the results of its latest quarterly bank watch survey were disappointing and showed banks are not lending to the level appropriate to an economy "on the mend".
Chief executive Mark Fielding called on the cabinet, through the Central Bank, to investigate why it takes an average five full weeks for a credit decision instead of 15 days as recommended.
"The statistics from our own Central Bank, the ECB and numerous economists demonstrate the dearth of appropriate credit," he said.
"We must put an end to the fiction that bailed-out Irish banks are functioning properly.
"Despite assertions from the banking PR machine, access to credit is abysmal, the application process is getting more torturous, while 'zealous' bankers terrorise owners of small and medium businesses with legal letters of foreclosure, rather than negotiate an economic settlement."
More than 1,000 owner managers of SMEs who responded to the survey, conducted in the week ending September 6, revealed:
:: 35% requested additional or new bank facilities in the last three month, down from 41% in the previous quarter.
:: 57% who applied for funding were refused credit, up from 44%.
:: 12% who needed finance did not even apply with 39% of those claiming they were discouraged by bank, while another 39% feared existing credit facilities would be cut.
:: 66% said banks were making it more difficult to access finance and almost a third were asked to reduce their overdraft.
:: 14% of initial bank decisions were made within one week, but the average time increased from four to five weeks.
:: 95% stated the Government was having either a negative or no impact on SME lending.
Mr Fielding called for Government to take action, including demanding honest and reliable reporting from rescued banks which he accused of distorting statistics.
"One of the keys to economic revival and sustained recovery is a properly functioning banking system," he added.
"The cornerstone of the economy is the SME sector, which will never reach its potential starved of finance.
"The Government must stop merely acknowledging that we have a banking problem and begin to act decisively."