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

Regional banks and credit card providers such as Regions Bank ( RF - Get Report), M&T Bank ( MTB - Get Report), BBVA Compass ( BBVA) and American Express ( AXP - Get Report)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."

With demand down, banks have to be proactive in reaching out to small business owners and helping those small business owners who don't qualify for loans find the resources they need , said Raj Seshadri, head of small business banking at Citibank.

"A lot of those business owners are nervous about the nervous about future economic conditions and they feel their businesses are not as robust as they would like them to be, so they are conserving cash. Deposit volumes are at an all time high," said Seshadri "They are deleveraging and streamlining operations and that is where their focus is so that's why lending is lower than it has been historically."

In order to reach small business owners, several banks are recruiting. Bank of America is hiring 1,000 small business bankers, Citigroup is hiring 200 small business bankers, Wells Fargo hired 1,500 and JP Morgan recently hired 500 small business bankers.

Besides hiring, banks like JPMorgan Chase and Bank of America have also added several new programs to tailor loans to small businesses in order to increase lending, including starting "second look" loan programs.

These programs structure loans differently so that small businesses having difficulty qualifying can meet the requirement. JPMorgan spokesman Tom Kelly said that bank has approved $250 million in second-look loans since announcing the program in early November, 2009. Wells Fargo and Bank of America also say they have seen success from the program.

Besides second-look loans, JP Morgan has also found success in programs that offer incentives for companies that hire employees or lease equipment. In addition, several banks such as Bank of America and Wells Fargo are also increasing Small Business Association loans and partnering with microlenders in an effort to aid borrowers that may not otherwise qualify for a loan. For instance, Wells Fargo has invested over $20 million dollars in 60 microlenders.

Banks are also building ways to engage these small business owners. Like American Express, Wells Fargo has also built a small business website featuring videos to help educate and answer questions small business owners have.

--Written by Maria Woehr in New York.

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