Tight Credit Squeezing Small Businesses

"We are selectively reducing credit lines to reduce our risk and our cardmembers' liability," she said. "Line reductions are one way we manage risk prudently, and we continue to make these decisions on a case-by-case basis. No one factor causes our decision."

Fochler had recently leased a facility to expand into grooming and retail services, but the space has remained empty while he looked for another source of credit. He has found the search for a loan time-consuming and disruptive.

"I'm constantly missing work as I've spent the last three weeks at what seems like the inside of every bank in the D.C. metro region," he said.

Baruah said the strong economic climate a few years ago may have created an environment where credit was "too loose." To respond to that, he said, banks recently raised credit standards and became more stringent in their loan decisions.

"But having said that, I think we're in a situation now where credit standards are too tight," he said.

Lenders, too, have been feeling the effects of the economic crunch.

The delinquency rate for the SBA's 7(a) program increased 38 percent from about this time last year, to 3.04 percent. The delinquency rate for its 504 program, used for funding long-term fixed assets like land and buildings, jumped 32 percent, to 2.21 percent.

Because of the high delinquency rate and other reasons, Bob Hoffmann, senior commercial lender with EagleBank in Bethesda, said he doesn't expect banks to loosen their loan requirements anytime soon.

But small business advocates hope the Fed plan to encourage loans will help.

"There is cautious optimism that the new facility, which is long-overdue, will begin to thaw the small business lending markets, which have all but stopped working," said Rep. Nydia Velazquez (D-N.Y.), the chairwoman of the House Small Business Committee. "More needs to be done, but this is a move in the right direction."

The SBA does not directly offer any loans itself, but it does offer guidelines and set certain rules for financial institutions participating in its loan program. It guarantees 50 to 85 percent of a loan to a qualifying small business.

That partial guarantee had made packages of SBA loans attractive to buyers in the secondary market, in which loans are packaged and sold.