WASHINGTON – July 13, 2010 – Federal Reserve Chairman Ben Bernanke urged banks to make more small-business loans, but many businesses say the real problem isn’t financing – it’s lack of business.

Speaking Monday at a Federal Reserve meeting on financing small businesses, Bernanke said some creditworthy businesses “have had difficulty obtaining the credit that they need to expand and, in some cases, even to continue operating.”

One measure of banks’ loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, Bernanke said. Small businesses employ about half the workforce and are responsible for 60 percent of gross job creation.

But the problem of small-business lending is a thorny one. Because of the decline in commercial real estate values, companies have a hard time using their buildings as collateral for a loan, and an even harder time using equipment as collateral.

“If the value of collateral has shrunk, the amount you can lend against it has shrunk as well,” says Bob Ramsey, research analyst at FBR Capital Markets, an Arlington, Va., investment bank.

And sometimes small businesses overestimate their worth, particularly in a weak economy. “Some borrowers think they have more borrowing capacity than banks think they have – as is normally the case,” says Frederick Cannon, co-director of research at Keefe Bruyette & Woods.

The biggest problem: Business is so weak that many businesses don’t want to borrow. A survey of small-business owners by the National Federation of Independent Business Research Foundation found that 20 percent of those surveyed planned to make capital expenditures over the next few months – 4 percentage points above a 35-year low.

A net 13 percent of those surveyed said loans were harder to get in their last attempt, and 92 percent said their credit needs were met, or that they didn’t plan to borrow. “Borrowers big and small are deleveraging,” Ramsey says. “They want to pay down debt.”

Commercial and industrial lending accounts for about 18 percent of all loans, says Keefe’s Cannon. And most banks say they want to increase their small-business loan portfolio. But “They’re swamped by the size of their real estate loan portfolios,” he says.

Borrowers also complain that bank examiners have kept banks from making loans. The Fed is working to combat that, Bernanke said.

“Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers,” he said. “Doing so is good for the borrower, good for the lender and good for our economy.”

© Copyright 2010 USA TODAY, a division of Gannett Co. Inc., John Waggoner