WASHINGTON - The outlook of small business owners remained bleak at the start of the new year, according to a survey released on Tuesday by the National Federation of Independent Business.

Small business owners entered 2010 the same way they left 2009 -- depressed, the group said, noting its Small Business Optimism Index reading for January was still below the 90 mark, the dividing line between positive and negative outlooks.

But the group also said that seven of the index's 10 components rose, indicating conditions could soon improve. Better outlooks on jobs, inventories and capital spending have helped push the index up 1.3 points since December, the group said.

In January, small businesses had to cut prices despite tangling with inflation while profits remained weak, according to the survey of the federation's 2,114 members.

Swelling inventories have largely contributed to the recent growth in U.S. gross domestic product. But small business owners said they continue to liquidate inventories, and with weak sales trends, have little incentive to replenish their stocks.

There are still more owners planning to reduce stocks than planning new orders, the group found.

At the same time, credit has remained sluggish with borrowers who usually take out loans at least once a quarter reporting difficulties in arranging credit at the highest frequency since 1983.

Too many houses were built, too many strip malls opened, too many restaurants started, too many new retail outlets were launched in the 2003-07 period and all of them cannot be supported by a consumer that now chooses to save, the group said.

The clouds hovering over small businesses since the recession began at the end of 2007 has gotten the attention of Washington.

Last week, President Barack Obama announced new assistance to small businesses, including a lending program through the Small Business Administration.

But the NFIB said the new aid is misdirected, as only 5 percent of small business owners cite 'financing' as their top business problem but 31 percent cite 'poor sales.'

Loans are not in short supply, it said, but reasons to get loans certainly are.

Inflation