In what should be no surprise, banks are cutting back on small business loans. Please consider Small business loans: $10 billion evaporates.

Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.



The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.



Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April.



Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.



While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.

Pump Runs Dry

President Obama vowed Monday to ease the financial plight of the nation's small businesses, which have been hit hard by the recession.



"Small businesses are the heart of the American economy," Obama said in a speech at the White House. "They're responsible for half of all private sector jobs, and they created roughly 70% of all new jobs in the past decade. They're not only job generators, they're at the heart of the American Dream."



Many small businesses, drowning from dried-up coffers and unpaid bills, are having a tough time getting loans from lenders.



"Too many entrepreneurs can't access the capital to start, operate or grow their business," Obama said. "Too many dreams are being deferred or denied by a form letter canceling a line of credit."



The stimulus bill allocated $730 million for direct spending on small-business programs, including expanded financial support for the SBA's two key lending initiatives, the 7(a) and 504 programs. Under those programs, the SBA guarantees loans made by banks to small-business borrowers. If the business defaults, the SBA picks up the tab for the insured portion of the loan.

Supply Side Economics Lesson

So Why Aren't Banks Lending?

Demand Side Economics

Demand for C&I loans from small firms

Lending Standards For Small Firms