Credit thawing, but U.S. firms balk at borrowing

By Emily Kaiser - Analysis

WASHINGTON (Reuters) - For all the talk of U.S. banks not lending, the bigger problem may be that credit-worthy companies simply do not want to borrow.

This presents a quandary for President Barack Obama, who is scrambling to find ways to spur growth and hiring with the jobless rate at 10.2 percent and likely to keep rising well into 2010, even as the economy climbs out of a recession.

So far, much of the effort in Washington has focused on loosening credit conditions to make borrowing easier. But if companies don't want to take on more debt right now, that strategy can't be very successful.

"The demand for credit is in short supply; there is not a major shortage of credit supply," said William Dunkelberg, chief economist at the National Federation of Independent Business, which represents small companies.

"What small business needs is customers."

Dunkelberg's group released a monthly survey of small businesses on Tuesday that found few companies planned to increase capital spending or hiring, and only 4 percent listed getting financing as their biggest problem. In the early 1980s, the last time the jobless rate was this high, some 37 percent of those polled listed financing as their top concern.

The Federal Reserve's quarterly survey of senior loan officers, released on Monday, showed larger companies were also reluctant to borrow. Demand for credit weakened since the Fed's July report, albeit at a slower pace.

Even among companies that are tapping credit markets, there is evidence the money is going to shore up balance sheets rather than to pay for hiring, investment or expansion.