Small Business Credit Available, Demand Weak

NEW YORK (TheStreet) -- The disconnect between meager small business loan demand, and the ample availability of financing, is driving banks to expand small business operations in an attempt to drum up new business.

Wells Fargo (WFC), JP Morgan ( JPM), Citigroup (C) and Bank of America (BAC) are all extending their small business lending services, and they are not alone.

Regional banks and credit card providers such as Regions Bank (RF), M&T Bank (MTB), BBVA Compass (BBVA) and American Express (AXP)are also extending services to attract more small business customers.

"This is an important business segment for us. First, we know small businesses play an important role in the recovery of the economy and in job creation. Secondly, we see this segment as a growth opportunity for the bank. We are hearing a lot about the lack of availability of loans," said Kathie Sowa, small business credit executive at Bank of America. "However, weak loan demand is the biggest issue."

Sowa says that according to a recent National Federation of Independent Businesses survey, 91% of business owners felt that their credit needs were being met and that their primary concern is the lack of sales revenue.

"We are not seeing people using the credit that they already have available to them," said Marc Bernstein head of business direct and small business at Wells Fargo. "For example, our small business customers have more than $10 billion of unused available credit on their lines of credit. Over the last year there has been very little increase in the amount borrowed."

Still , a July report from the National Small Business Association says 41 percent of small-business owners argue they can't get adequate financing. Lack of adequate cash flow and an inability to adjust their expenditures as well as lack of collateral or too much leverage are the most common reasons small businesses do not qualify for credit, said Bank of America's Sowa and Wells Fargo's Bernstein.

"A lot of businesses have struggled with weak sales and they didn't appear to have the cash flow to repay the credit they borrowed," said Wells Fargo's Bernstein. "The smaller businesses have disproportionally been hit hard by the downturn and some of them are working through challenges."

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