Bankers say the problem isn’t scarce credit, it’s lack of demand from creditworthy firms in a weak economy. The result may be more loans given to distressed firms and higher losses. While bank regulators don’t compile default rates, the biggest lenders have charge-offs of 4 percent to 14 percent tied to small businesses. Eliot Stark, managing director at Capital Insight Partners Inc., said their credit record resembles “junk.”
“The highest demand for loans is from the companies least qualified, the companies that have really struggled because of the economic downturn,” said Stark, a former Comerica Inc. executive whose Chicago-based investment bank helps community lenders raise capital. The way lawmakers see it, “everyone’s a good borrower, and that’s just not the case.”
A big issue is that a lot of small businesses have seen their short term credit lines dry up. Arguably (I don't know and don't know if the person quoted knows) these are the "least qualified" businesses in the sense that they are struggling short term, but they're struggling in part because a lot of them have had their credit lines suddenly yanked at the wrong moment. If you're planning to get through a rough patch by drawing on a $30K credit line which you thought you had, but then suddenly it's gone, you're pretty screwed.
This is a separate issue from whether healthy businesses have troubles getting loans to expand their businesses in this exciting economy.