Bankers swear they still have money to lend, even as bank profits fell to their second-lowest level in 18 years.

Banks and savings institutions insured by the Federal Deposit Insurance Corp. earned $1.7 billion in the third quarter of 2008, down 94 percent from the same period a year earlier, according to the FDIC. Higher provisions for loan losses were the primary reason for the decline in profits, the FDIC reported.

Despite these loan losses, “the banking industry as a whole remains well-positioned to meet the credit needs of local communities,” said James Chessen, chief economist for the American Bankers Association.

Despite reports of a credit crunch, business lending is up 8 percent compared with a year ago, and loans to individuals have increased nearly 7 percent, he said.

“Even in the face of this economic downturn, banks are actively looking for good loans to make,” he said.

Banks have cut back on real estate development loans because of oversupply in the market, said David Bochnowski, chairman and CEO of Peoples Bank in Munster, Ind.

However, “generally speaking, most bankers are pretty serious about making credit available,” he said.

Tom Burke, senior vice president at Wells Fargo, said his bank is seeing less demand for small business loans, partly because potential customers are worried about where the economy is headed.

“A lot of folks are staying by the side,” Burke said. “They’re waiting to see what will happen.”

Bochnowski and Burke both spoke at a Nov. 20 Securities and Exchange Commission forum on small business capital formation.

That same day, a Federal Reserve Board official told the House Small Business Committee that credit still is available to small businesses, even though lending standards have tightened.

“While credit supply concerns are real, the weakened state of the economy appears to be the more serious challenge facing most small businesses in the current environment,” said Randall Kroszner, a member of the Fed’s board of governors. “Importantly, there is some evidence that concern over access to credit is relatively stronger at larger businesses.”

Members of the committee, however, told Kroszner and a Treasury Department official that small business owners in their districts report plenty of problems with access to credit.

“You two gentlemen need to get out more,” said Rep. Lynn Westmoreland, R-Ga.

Millions of self-employed face mortgage shock

Around 3.7 million self-employed business owners have home mortgages that will reset at much higher interest rates, according to the National Association for the Self-Employed.

This finding was based on an analysis by the Kean University School of Business in Union, N.J., which found that many small business owners were enticed into refinancing their homes with mortgages that featured low initial interest rates or required little or no documentation of income.

“These small business owners will be at risk for payment shock and default as their monthly mortgage payments skyrocket during the resets that are scheduled to begin in fourth quarter 2008 and continue through 2012,” said Kean professor Samuel Bornstein. “The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners and small business owners.”

More small businesses report cash flow issues

About 44 percent of small business owners this month reported they had experienced cash flow issues over the past 90 days, up from 38 percent in October.

That’s according to a monthly survey conducted by the Discover Business Card. Consumer-oriented businesses were more likely to experience cash flow issues than business-to-business firms.

The survey’s index of economic confidence indicators fell 3.9 points in November to 67.5, its lowest point since the index was started in August 2006. More than 70 percent of small business owners felt the economy was getting worse.

A similar survey by the National Federation of Independent Business found that its index of small business indicators fell 5.4 points in October to 87.5, the third-lowest reading in that survey’s 35-year history.

That survey also found that cash flow pressures were forcing small business owners to postpone expansions and investments in new equipment. An overwhelming majority reported that profits were declining.

Economic indicators for a variety of industries also show declines. The Semiconductor Industry Association expects global semiconductor sales will drop next year for the first time since 2001.

The Architecture Billings Index, an indicator of future nonresidential construction activity, in October hit its lowest level since the survey began in 1995. The survey is conducted by the American Institute of Architects.