) -- 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) - Get Bank of America Corp Report

. "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) - Get Newtek Business Services Corp. Report

, 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."

Of course, politicians and regulators can't spur an economic revival with a snap of their fingers. (Although

Federal Reserve

chief Ben Bernanke probably

wishes that was the case.)

What they


do, though, is spur a little more optimism about American ingenuity, entrepreneurism and hope for what's on the other side of the recession.

A host of surveys about small-business sentiment from lenders, researchers and industry groups show that small business owners are, definitively, down in the dumps. They've been that way for more than two years, according to a benchmark index by NFIB.

In a commentary that opened "Well, not much has changed," the NFIB went on to criticize the stimulus bills, automaker bailouts, QE2 and a political culture that encouraged lots of teeth gnashing on Capitol Hill but didn't move the needle much for small-business owners. The group closed by echoing a common sentiment among business leaders: That the newly split Congress might take recent election results as a mandate to get something done.

"Although Congress has erected many 'headwinds' for growth, the new management team may provide some relief and reduced uncertainty," said the NFIB. "This would certainly promote more growth."

The financial industry has said repeatedly that it's ready to do its part - in other words, lend - when that confidence returns. Executives at top small-business lenders like Bank of America,

Wells Fargo

(WFC) - Get Wells Fargo & Company Report


JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report



TheStreet Recommends

(C) - Get Citigroup Inc. Report


American Express

(C) - Get Citigroup Inc. Report

have bemoaned the lack of small-business loan demand. They regularly hold promotional events and issue press releases to woo and retain quality borrowers.

And yet the small-business contingent continues to complain loudly about loan rejections. Bank executives indicate that's simply because those customers don't meet tighter underwriting requirements. For example, Sowa says borrowers are often rejected because they're looking for a new loan to pay down other debt.

"We would like to make more good, prudent loans," she explains, but "there are businesses that just no longer qualify for credit. The No. 1 reason for that is they just don't have enough cash flow. Regulated financial institutions can't lend to a small business that doesn't have cash flow."

Sloane -- whose business competes against bank lenders for quality borrowers -- contends that banks aren't doing enough to extend credit. But even he admits that "typically, the people lined up outside your bank looking to get a loan aren't the ones you necessarily want to lend money to."

Scott comes at the issue with a diverse point of view. Before his time as a scholar and academic, he was a senior financial executive at the Federal Home Loan Bank of Dallas. He's also an investor in Liberty Bell Bancorp, a small community bank in New Jersey run by his colleague William Dunkelberg.

He notes that the issues holding back small-business growth are too diverse to address by simply boosting SBA loans. They're coping with weak sales, fickle consumers, giant competitors, an uncertain outlook and a new lending model that limits their funding options. The definition of "small business" itself is tough to nail down - is Scott's self-employed plumber a small-business? What about a company with $50 million in annual revenue? "There are public companies with less than that in revenue," Scott points out.

Yet, Scott believes that when optimism and confidence do return, small businesses will be the fuel of economic growth. Right now, they're just waiting for a match to light the fire.

In what might've been a good stump speech, he makes his case thus:

"In the U.S., you get rapidly growing tech companies that start up. A


(GOOG) - Get Alphabet Inc. Class C Report

, a Facebook - they're adding a lot of employees. Those are some high profile, what I call 'celebrity' firms. But these rapidly growing, huge companies all start out small.

"It may be just starting a new gift shop or a new day care service," he continues. "Many small firms start from large firms and may be funded by large firms. An engineer at


(DELL) - Get Dell Technologies Inc Class C Report

may decide to strike out on his own in some specialty business. It can range from barber shops, beauty shops, day care to biotech firms, engineering services, WAND services - you've got a wide range. But these bland, prosaic businesses are what promote job creation when the economy stabilizes and the outlook improves.

"When you look across the country," he concludes, "it's really new entrepreneurs that do the heavy lifting. It's in the DNA of Americans to be your own boss."

-- Written by Lauren Tara LaCapra in New York


>To contact the writer of this article, click here:

Lauren Tara LaCapra


>To follow the writer on Twitter, go to



>To submit a news tip, send an email to:



Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.