Small businesses employ nearly half of the nation’s workforce and account for about 60 percent of gross job creation. However, American companies have struggled to get access to the credit they need, severely limiting the creation of new jobs that can lead our economy towards recovery.

History has shown that small businesses create more jobs than larger companies at the start of an economic recovery. But recent contractions in available credit are limiting the ability of small firms to play this critical role. A New York Central Bank poll of 426 business owners reported that 59% applied for credit during June and July of 2010. This suggests that businesses are actively seeking credit despite many banks’ claims that business owners simply aren’t applying for loans.

Of bigger concern is the creditworthiness of small businesses that are applying for new loans. For some time, banks have said that applicants don’t meet their tightened lending standards. The New York Federal Reserve report confirms these comments, finding “evidence of comparatively strong demand but weakened applicant quality and continued perceptions of restricted credit availability.”

The small businesses that have been successful in acquiring new financing generally had sales growth during the recessionary period, were at least 5 years old, or could prove that they had enough previously saved profits to carry them through an extended downturn.

In a recent speech, Federal Reserve Chairman Ben Bernanke said that there are “positive signs” for small businesses seeking credit. “In particular, banks are no longer tightening lending standards and terms and are reportedly becoming more proactive in seeking out creditworthy borrowers,” he said.

About the author:

Reggie Britt is the President and CEO of Compass Technologies the company behind Kwik-Loan consumer finance software and Kwik-Dealer indirect lending software.