What Should Obama Do Re: Small Business Credit Crunch?

I get asked all the time: shouldn't the government do more to get banks to lend to small businesses? The obvious answer is yes. But I think the answer is "it depends… maybe not". 

Looking back to the mortgage mess that brought the world to its knees, it was the government strongly encouraging (in many different ways) banks to lend to people to buy homes. Credit was cheap and standards were low, and many people that shouldn't have received a mortgage got one.

Keep in mind it isn't like banks don’t like small businesses. They like small businesses because small businesses generate income for banks from fees, interest generated from deposits from small businesses, and interest charged on small business loans. Banks also often use loans as a way of luring a small business from a competitor and placing its deposits with the bank.  So banks like lending money to small businesses. 

But banks hate writing off loans (or the precursor, moving loans to the "workout" groups). Also, banks lend money to companies where 1) there is a very solid cash flow stream to service the debt and 2) there is collateral.  (Regarding the first point - cash flow, see "Debt & Your Company: How, When & What"). 

Now I have heard stories of companies with great cash flow getting turned down for loans (or getting their credit lines reduced).  Those are companies that are "unfairly" being "punished" because banks have, since 2008, raised their lending standards.  They are not getting turned down because of something going wrong at the company but because credit managers have been told to "limit exposure".

Earlier this month, Bernanke told banks to lend more to small business (see details an article from the NY Times).  He didn't force them, he just reminded banks of the importance of small business and " urged banks to examine loan applicants’ businesses thoroughly and to avoid mechanical, automatic rejections based solely on the companies’ industry, location or other negative factors."

In reality, I'm not sure what else the government can or should do. 

Through the Small Business Association's lending programs, the already guarantee 80 to 90 percent of some loans that are typical collateral heavy (when the SBA is properly funded). While I would like to see the credit markets open up considerably for small businesses, I don't want to see the mortgage crisis part 2. 

Perhaps the government could have the banks publish the number of loans they make to small businesses each week. (As far as I know, only SBA guaranteed loans are made public).  This way small businesses, as well as everyone else, could see if the banks that are saying they are lending more really are.