National Australia Bank (ASX: NAB) said small- and medium-size enterprises confidence has declined, two days after it announced a delay in its projected business banking growth.

While NAB business banking executive general manager Geoff Greer said long-term profitability outlook was still positive, the small business sector is keeping one eye trained on the outcome of the federal election.

"They are also interested in the interest rate outlook and outcomes around future government policies," Mr Greer said.

NAB's quarterly survey of SMEs found business conditions, profit expansion and the cash flow position plummeted in the June quarter.

Frail customer demand, cash flow, and increasing borrowing costs were the key worries cited by 700 SMEs interviewed by NAB in late May and early June, the bank said.

Interest rates and access to credit were the main drivers of worries relating to borrowing costs.

The weak results come two days after NAB displeased the market with below-consensus $1.1 billion unaudited June quarter cash earnings.

Chief executive Cameron Clyne said the bank's projected growth spurt from the business banking franchise, announced to the market in May as the main driver of future earnings, would now be postponed until 2011 despite the pipeline for business loans being "very strong."

NAB is scheduled to release its fiscal 2010 result on October 27.