There are fears that thousands of firms could go out of business in the coming months, with lobby groups warning that small businesses are suffering a "lethal cocktail" of falling sales and rising costs.
The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the availability of funds available to small businesses to 2007 levels.
However, there has been little sign of this happening yet and the government has said the European money - which will be lent to banks participating in the initiative and passed onto their customers - will provide vital extra support for many businesses.
At a meeting with the head of the European Investment Bank - the lending arm of the European Union - Mr Darling said up to £4bn in additional funds could be available over the next four years.
Small firms were the "lifeblood" of UK business and access to regular and predictable funding was "crucial to their survival", he argued.
"Our economy needs these strong small businesses and strengthening them will need our help," he said.
Banks have already applied for £1bn of funding, Mr Darling explained, and he urged more lenders to "seize the opportunity" to get involved with the EIB's scheme.
It is intended firms will be able to use the money for a range of purposes, from providing basic working capital to funding specific areas such as research or distribution.
We need to be assured that this money will actually filter down to small businesses
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