WASHINGTON — Federal Reserve Board Chairman Ben Bernanke put the onus squarely on banks to remedy small-business owners' continuing complaints about the limited availability of credit.

"We have heard the often-expressed concern that bank examiners have prevented banks from making good loans," Bernanke said Monday at a conference on small-business lending hosted by the central bank. "Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers. Doing so is good for the borrower, good for the lender and good for our economy."

A preliminary report by the Fed, based on meetings it held nationwide, found small businesses blame tougher underwriting standards for making it more difficult to access credit. They also acknowledged that lending standards seem to have returned to more traditional underwriting practices that existed before the economic downturn.

"The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment," Bernanke said. "It is in lenders' interest, after all, to lend to creditworthy borrowers; ultimately, that's how they earn their profits. Regulators, for their part, need to continue to work with lenders to help them do all that they prudently can to meet the needs of creditworthy small businesses."

Loans to small businesses declined from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to data cited by the Fed.

Restoring lending to normal levels has been one of the Fed's key priorities to stimulate an economic recovery and reduce unemployment levels. Starting in February, the Fed held more than 40 meetings across the country on the state of lending for small business in cities such as New York, Chicago, Morgantown, W. Va., and Little Rock to help develop policies that support the flow of loans to creditworthy borrowers.

To date, lending has remained constrained even with efforts by the Fed to inject capital into the market through programs like the Term Asset-Backed Securities Loan Facility.

What's unclear is whether the pendulum has swung to excessively high standards or has returned to proper levels, Robin Prager, assistant director of the division of research and statistics at the Fed, said during a presentation.

Banks, she said, generally reported the use of stronger collateral requirements, a greater focus on cash flow and higher personal credit thresholds. Small-business owners in Boston and Cleveland, according to the Fed, complained that their credit scores declined after credit limit reductions led to higher debt ratios, despite the fact that they were always current with payments.

Borrowers also voiced concerns about additional collateral required for existing loans backed by personal residences or commercial property because of a significant decline in asset values.

According to the Fed's report, one small-business owner in Dayton, Ohio, said, "If you have the money you need [i.e., good cash flow and collateral], then they'll loan to you."

For their part, banks raised concerns about regulatory challenges like examinations.

In St. Louis, participants said they were unsure whether examiners were requiring the expected 5% Tier 1 capital ratio or whether a stricter standard of 7% was being applied.

Karen Mills, the head of the Small Business Administration, reiterated comments by Bernanke that small businesses rely heavily on credit to sustain and expand their operations.

"Many firms are growing … and hiring more workers. They need our support. If they can't get loans, then they can't get jobs … then something is still broken."

Mills urged Congress to move quickly to extend the SBA's recovery loans, temporarily raise caps on working capital to $1 million from $350,000 and increase the maximum size on SBA loans from $2 million to $5 million to help aid an economic recovery.

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