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Small Business Key To Recovery: Banking Official

Helping small businesses may be the key to economic recovery, says Camden Fine, president & CEO of Independent Community Bankers of America.

"Until you get the small business sector back on its feet and get it vibrant, you are basically knocking out about 20 percent of the GDP," Fine told CNBC on Wednesday. "And it's hard to have a robust recovery if you have 20 percent of the GDP lagging."

Small firms make up 99 percent of U.S. companies and until they can begin hiring substantially, tight credit will remain a problem, said John Kanas, a private equity investor who bought BankUnited from the Feds earlier this year.

"This is a very uneven recovery," said Kanas. "And while Wall Street is enjoying boom times again I know 20-30 million people who wouldn't agree; they don't have jobs.

The situation is creating a self-fulfilling prophecy.

While small firms suffer from a lack of liquidity, community banks are also having difficulty providing loans to qualified borrowers. Bank United, for instance, invested $10 million towards a new loan program with a 24-hour turnaround time in September, yet the bank hasn't seen substantial demand in the southeastern United States.

"The balance sheets of small companies in this country, which are 99 percent of the firms in the United States, have less than 50 employees and are 20 percent of the GDP are in terrible shape," he said. "We can artificially pump life into this system by helping to provide credit and talking about tax incentives, we need a stronger economy to pick the pace up here."

And although tight credit is an issue for many banks, those that reopen after having failed may be even more strapped, said Fine.

"The FDIC has been doing this for decades so they are very good at bank resolution and bank failure procedures and opening, reopening the bank on a Monday morning," he said. "However, depending on what entity purchased that bank, credit might not flow at the same pace prior to closure."

Meanwhile, heightened oversight of banks and uncertainty in Congress have also undermined recovery at the grass-roots level, said Fine.

"The regulatory examination environment is extremely harsh and that is causing bankers to pull in and preserve capital because they've made loans to small businesses and those loans are being classified, all because everybody's focused on the underlining real estate and not the cash flow or the capacity of the borrower to service that debt," said Fine.