Banks' Next Profit Center: Small-Biz Lending

NEW YORK (TheStreet) -- Now that mortgage bailout dollars have worked their way through much of the housing market -- delivering tens of billions of dollars in profit to large, mortgage-servicing banks -- the next profit center via government subsidies appears to be commercial lending.

Small businesses and major corporations alike have been voicing increasing frustration at their lack of available credit. The credit crunch began nearly two years ago as panic started around the difficulties of Bear Stearns, and slowly spread out from the financial markets to the real economy. The weekend's collapse of CIT Group (CIT) -- which has relationships with more than 1 million small and medium-sized businesses -- has only exacerbated the problem, as the firm has sharply cut new and existing credit in an effort to survive.

Tom Drennen was about to receive a loan with CIT back in October 2008 -- roughly a year before the troubled lender filed for bankruptcy -- to open a Beef 'O' Brady's restaurant in Newport, Ky. But two weeks away from closing, Drennen says CIT told him it could no longer issue the funds.

"They called and said they had frozen all their loans; they weren't lending anymore, period," says Drennen. "It was back to the drawing board ... I pretty much just hit the pavement. I went to every single bank in the area."