What The Small Business Bill Didn't Do

WASHINGTON (TheStreet) -- The concerns of small-business owners became a focal point of policy ahead of the elections this month, but the government appears to have spent billions of dollars addressing the wrong issue.

The small-business problem is often described as a dearth of lending. As a result, lawmakers and President Obama pushed through a $42 billion package of loan incentives and tax breaks to help things along. That bill came on the heels of other assistance offered in 2009 - monetary aid, changes to Small Business Administration (SBA) standards - to grease the wheels of small-business lending.

Yet truly "small" businesses - the mom and pop shops mentioned all along the campaign trail - tend not to rely on that kind of debt. Instead, they use credit cards, home-equity loans and cash flow to fund operations. Bigger companies that seek SBA debt for equipment purchases and expansion aren't doing so because of economic uncertainty. Top players in the small-business arena say that's the real problem they wish Congress would address.

"What we hear is, clearly, that lack of sales revenue is the No. 1 problem," says Kathie Sowa, small business credit executive at Bank of America (BAC). "The recent legislation, some of the program changes, will help some businesses get financing at the margin. But it isn't a fix."

Barry Sloane, CEO of small-business lender Newtek Business Services (NEWT), agrees: "Today, small business is worried about the demand of the consumer. Clearly, consumer demand is weaker. Therefore it's difficult for them to grow sales or forecast sales. That uncertainty causes the decline in business optimism, and it kind of becomes a self-fulfilling prophecy."

Jonathan Scott, an associate finance professor at Temple University's Fox School of Business, researches small business and is an adjunct scholar at the National Federation of Independent Business (NFIB). He cites data showing that, between 1993 and 2008, the portion of small businesses that didn't want to borrow was roughly 43%. Since then, the level has risen to 53%.

"Part of that is due to the uncertainty about the economy," says Scott. "When you ask these firms 'What's the most important problem?' they say it's the economy. It's not the credit; it's the top line issues."