Access to credit is a major hurdle for small businesses

A record 41 percent of small-business owners can't get adequate financing, a 100 percent increase from 22 percent reporting similar difficulties two years ago.

New small-business loans declined 33 percent last year from 2008 to $191.6 billion, the lowest level since 2000, according to the Federal Financial Institutions Examination Council.

Banks have curtailed lending to small businesses by over $40 billion, from $710 billion in the second quarter of 2008 to $670 billion in the first quarter the current year.

Large banks with $100 billion or more in assets trimmed their small-business loan portfolios by 9 percent, more than double the 4.1 percent during the 2008-09 period.

Despite the fact that public funds were allocated to help maintain the stability of credit markets in the aftermath of the 2007-08 financial crisis, most of these funds went to the aid of financial institutions considered "too big" to fail on Wall Street.

Today, however, these same financial institutions have curtailed their lending to small businesses.

The Congressional Oversight Panel reported recently there is little evidence that government assistance provided in the Troubled Asset Relief Program has spurred any significant lift in small business lending.

Whereas the financial health of banks that received government help has stabilized, smaller banks continue to face escalating losses due to deteriorating conditions in the commercial real estate sector.

These problems severely impair small banks' ability to extend credit to small businesses, the major source of job creation in the economy, as indicated by Dennis Lokhart, president of the Atlanta Federal Reserve Bank.

Although smaller banks account for only 20 percent of total CRE held by banks, they carry almost 50 percent of all commercial debt on their books. Such high overexposure to CRE is proving disastrous to small banks and the communities they serve.

Besides the financial problems small banks face, mismanagement and greed have also taken a toll and contributed to their demise in several communities.

Closer to home, recent events at Integrity Bank and the Community Bank & Trust of Cornelia remind us how the misconduct of a few can bring a lot of financial pain to many in a trusting community.

Today, small businesses face a challenging credit environment.

Although larger businesses have access to the corporate bond and commercial paper market and draw only 30 percent of their funding from banks, small businesses lack this flexibility and depend on banks for more than 90 percent of their funding needs.

Whereas the tighter credit scrutiny that has followed the recession has impacted all sectors in the economy, small businesses have been disproportionately affected by the overall decline in lending.

The many problems small banks face today doesn't bode well for improvements in credit availability to small businesses any time soon.

Credit is the lifeline of business. Without it, our economy can't function and prosper.

If credit is unavailable, small businesses are impaired in their ability to expand, purchase equipment, hire workers and put the economy on the path to recovery and prosperity. The solution to our economic woes needs to start on Main Street.

The recently enacted Small Business Lending Fund recognizes this fact. However, it is a weak medicine that has arrived too late and offers little comfort to the thousands of small-business owners who had to close their doors and whisper goodbye to that great pillar of the American dream, the dream of business ownership.

Edgar Ortiz is founder and CEO of Strategic Analytic Solutions LLC, an Atlanta-based consultancy in business planning, strategic marketing and information-based strategies.