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Business confidence among small-to-medium sized companies (SMEs) has surged to levels not seen since just before the onset of the global credit crunch, a survey says.

The Sensis business index found business confidence jumped 20 percentage points in the September quarter, with optimists now outnumbering pessimists 65 per cent to 15 per cent. It was the largest quarterly leap since the survey began in 1993 and came on the back of an 18 percentage point increase the previous quarter.

"The key reasons SMEs gave for improved confidence this quarter related to feeling that business and the economy would improve," the report says. "This quarter's strong improvement brought confidence to its highest level since August 2007, before economic conditions started to decline."The report said the results of the survey suggested "an economic environment that is moving towards recovery, however with some risks remaining, particularly on the employment front".

The lift in confidence was also reflected in an improved outlook for the year ahead. More companies are anticipating higher sales and profitability over the next 12 months than they were in the previous quarter. Also, more firms expect to increase the size of their workforces in the year ahead. However capital expenditure plans are unchanged.

Business confidence was highest in Tasmania and the Northern Territory and lowest in New South Wales. Despite the more confident outlook, the report found business conditions in the three months from May to July remained subdued as firms grappled with the slowdown in the economy. The report found businesses continued to shed staff, and at a faster rate than the previous quarter.

Most of those surveyed also reported lower profits, while the number of respondents who said their sales rose was equal to the number who saw sales fall. Exports also decreased. "The main changes SMEs were making as a result of the economic downturn were to try to reduce costs, advertise more, and add new products," the report said. The report's author Christena Singh said despite two "strong quarters of improvement", the current economic downturn was still having an impact on SMEs.

"The improvements in confidence and expectations have been stronger than the improvements in actual performance, so there are still risks to the sustainability of the current economic recovery," Ms Singh said in a statement. The survey of 1800 SMEs was conducted between August 18 and September 4.