Earlier this month, the Federal Reserve Bank of Cleveland released a study regarding why small business lending isn't what it used to be.

Earlier this month, the Federal Reserve Bank of Cleveland released a study regarding why small business lending isn’t what it used to be. “Small business lending has dropped substantially since the Great Recession,” writes Ann Marie Wiersch and Scott Shane. “While some measures of small business lending are now above their lowest level since the economic downturn began, they remain far below their levels before it ….”

I don’t think there’s any question that small business is collectively the driving force of job growth in the U.S. — which is why everyone should be paying attention to this type of economic news. But the definitions the government uses to describe just exactly what is a small business are pretty complicated and don’t answer questions about just where in the small business continuum those jobs are created — but outgoing SBA Administrator Karen Mills does.

You might be surprised to know that it’s the barbershop down the street and the dry cleaner on the next block (and other businesses like them) that are the biggest job creators. Although politicians like to talk about how important small business is, they are always too willing to give tax breaks or other concessions to potentially big employers. They’re missing the point of who really creates the most jobs.

Mills suggests the type of business you and I identify with as small business are the real job creators, “approximately 4.5 million are Main Street businesses. These are the dry cleaners, mechanics, and medical clinics that form the fabric of our communities. Main Street businesses make up nearly 70 percent of the jobs in our country ….”

She also points out sole proprietorships, the vast majority of small businesses in our country, are responsible for 23 million jobs.

If the smallest small businesses are really the biggest job creators, I’m concerned that the current trend in small business lending is not going to support long-term job growth.

Not long ago the National Small Business Association (NSBA) released its 2013 Mid-Year Economic Report, which suggests, “Today, just two-thirds of small businesses (65 percent) report they are able to obtain adequate financing, down from 73 percent six months ago.”

Forty percent of NSBA survey respondents have less than five employees and 66 percent report 19 employees or less — the type of businesses Mills suggests are our nation’s job creation machine. The report authors suggest, “Small business plays a huge roll in economic growth, specifically when it comes to hiring. Unfortunately, just 18 percent report increasing their employee size, while 26 percent report decreases in employee size, resulting in negative net employee growth.”

This seems to support what is coming out of the Federal Reserve Bank of Cleveland, but there is a lot of finger-pointing as to where the problem lies. The report identifies three primary reasons lending is down and one revelation I don’t think anyone expected:

1. Demand is down: “Bankers say that the main reason small business lending is lower than before the Great Recession is that demand has fallen. Small business owners, they argue, aren’t expanding, depressing the amount that the small business sector needs to borrow.”

Small businesses were hit pretty hard during the recession and the report authors suggest, “typical self-employed household income saw a 17 percent drop in real earnings [between 2007 and 2010].” What’s more, the pounding small business owners have taken in the last few years has probably caused a drop in confidence among business owners' willingness to stick their neck on the line with the bank. And the next two reasons for the decline probably shed the most light on why they might lack that confidence.

2. Small businesses are less creditworthy than they used to be: “Fewer small business owners have the cash flow, credit scores or collateral lenders are looking for. According to the latest Wells Fargo/Gallup Small Business Index, 65 percent of small business owners said their cash flow was “good” in the second quarter of 2007, compared to only 48 percent in the second quarter of 2013.”

Credit scores are a critical metric banks look at when evaluating a potential small business loan, and the recession has taken its toll. I understand that sometimes a small business owner needs to rob Peter to pay Paul to keep the doors open, but it comes with a cost. The report argues, “The Federal Reserve’s 2003 Survey of Small Business Finances indicated that the average PAYDEX score of those surveyed was 53.4. By contrast, the 2011 NFIB Annual Small Business Finance Survey indicated that the average small company surveyed had a PAYDEX score of 44.7. In addition, payment delinquency trends point to a decline in business credit scores.”

3. Lending standards have tightened: “Loan standards are now stricter than before the Great Recession. In June 2012, the Federal Reserve Board of Governors asked loan officers to describe their current loan standards ‘using the range between the tightest and easiest that lending standards at your bank have been between 2005 and present.’ For nonsyndicated loans to small firms (annual sales of less than $50 million), 39.3 percent said their standards are currently ‘tighter than the midpoint of the range,’ while only 23 percent said they are ‘easier than the midpoint of the range.’ ”

I understand that nobody wants to revisit the savings and loan scandal by encouraging banks to lower their standards to accommodate even the worst credit risks, but I can’t help but wonder why standards have relaxed for bigger companies and not smaller companies. “Moreover, while banks have loosened lending standards for big businesses during the recent economic recovery, they have maintained tight standards for small companies,” write the report's authors.

None of this surprised me. As a small business owner, I’ve lived it. What does surprise me is the revelation that we can’t blame all this on the financial crisis or the Great Recession. The authors suggest, “Recent declines in small business lending also reflect longer-term trends in financial markets. Banks have been exiting the small business loan market for over a decade. This realignment has led to a decline in the share of small business loans in banks’ portfolios.”

Although the last few years have seen the aforementioned reasons impair a small business owners’ ability to secure financing, recent events are only a part of the problem. I don’t mean to be disagreeable, but the tens of thousands of small business owners who visit each month looking for a loan lead me to believe that there is demand. Instead of pointing fingers at the obvious problems associated with small business lending (there’s clearly enough blame to go around among bankers, regulators and small business owners), we need to start looking at what we can do to kick-start our economy’s job creation machine.

Wiersch and Shane conclude, “The confluence of events makes it unlikely that small business credit will spontaneously increase anytime in the near future. Given the contribution that small businesses make to employment and economic activity, policymakers may want to intervene to ensure that small business owners can access the credit they need to operate effectively. When considering means of intervention, however, it is important for policymakers to understand and take into account the multiple factors affecting small business credit. Any proposed solution needs to consider the combined effect of these factors.”

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If we’re serious about creating jobs and revitalizing communities, it’s time to take action. We’ve got to do more than talk the talk. Earlier this month, a new interim SBA administrator, Jeanne Hulit, was announced. She has a track record of streamlining process and making SBA programs more accessible to the community. I’m surprised that outgoing administrator Karen Mills announced her departure six months ago and an interim administrator was appointed.

Maybe the first step should be a search for an SBA administrator (or give Hulit the job) and give the SBA a mandate to help the smallest small businesses find access to the capital they need.

As a Main Street business evangelist and marketing veteran with more than 25 years in the trenches, Ty Kiisel writes about leading people and small-business issues for