The Chancellor of the Exchequer George Osborne has said the government is looking to join forces with banks to lend money to businesses.
He was speaking at the House of Commons Treasury Committee to answer questions about last week's Autumn Statement.
It said economic growth was slowing, government borrowing was rising, and unemployment will continue to increase.
The Chancellor said he is looking at a credit-easing scheme for businesses, but gave no details.
He admitted there was issues over lending to small firms.
Mr Osborne said: "There is a disconnect from what you hear from the banks and what you hear from the small business community.
"I'm sure of course there's an issue with demand. Some businesses are just nervous. But I think there's also a lack of supply. I think there is a lack of competition."
Last week, the independent Office for Budget Responsibility (OBR) slashed its UK growth forecasts, to 0.7% for 2012 from a March estimate of 2.5%.
Speaking to the committee, the Chancellor said: "There is a very significant downside risk to this forecast from the ongoing situation in the eurozone.
"If the euro crisis deteriorates, if that leads to further deterioration in conditions in financial markets, that will have a significant impact on our economy."
But he added he would not seek tax cuts to kick-start the economy.
Mr Osborne said: "You would hazard your chances out on the international debt markets to pay for that tax cut."
He added that he will officially reply to the Vickers report on banking reform in a House of Commons statement on 19 December.
The report suggests the ring-fencing of banks' High Street divisions to protect them from riskier investment arms and establishing 'cash cushions' to protect against further losses.
The 2012 Budget will be unveiled on Wednesday, 21 March.