For the past year, banks have seen strong demand for commercial and industrial loans from large and midsize companies. Still on the sidelines, though, are small businesses, which have shown no urgency to tap existing credit lines and take advantage of cheap capital.

"We have a lot of small customers with revolving lines of credit and they just aren't using them," says Bill Thackery, executive vice president and chief credit officer at $98 million-asset Friendly Hills Bank in Whittier, Calif. "I think so many small companies were hurt so hard this time around that they are reluctant to put up capital for expansion or incur debt right now."

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