Density functional calculations are performed for OH-, F- and H-terminated 4H-SiC 10-20 Å diameter clusters to investigate the effect of surface species upon the optical absorption properties. H-termination results in a pronounced size-dependent quantum-confinement in the absorption, whereas F- and OH-terminations exhibit much reduced size dependent absorption due to surface states. Our findings are in good agreement with recent experimental studies, and are able to explain the little explored dual-feature photoluminescence spectra of SiC quantum dots. We propose that along with controlling the size, suitable surface termination is the key for optimizing optical properties of 4H-SiC quantum structures, such as might be exploited in optoelectronics, photovoltaics and biological applications.