Small companies create more than half of America's jobs, but the entrepreneurs who drive this part of the economy continue to complain that access to credit two years into the recession remains scarce.

Small business owners say banks remain extremely wary of risk and a world away from the carefree lending that inflated an epic boom in housing values that went bust and pushed America into its worst economic downturn in decades.

They say their home equity lines of credit have been cut, business credit lines withdrawn and credit card limits slashed. Still profitable firms complain of a major pullback by banks, which many warn will leave a U.S. economic recovery stillborn.

It's like we've gone back 15 years in time, said Carmine Ryan, who founded Ryan Bros Coffee in San Diego with his brothers Tom and Harry in the early 1990s, using credit cards.

We have a proven track record, we pay our bills early and we're profitable, he said. But banks are so gun-shy now that no one would touch us. They're just sitting on the money.

The Ryans developed a wholesale coffee business and opened a second coffee shop earlier this year. After they opened it, they sought a loan of $120,000 to finance operations. Nonprofit lender CDC Small Business Finance was able to arrange a $90,000 loan. The rest they had to come up with themselves.

This is not the way it should be right now, Harry Ryan said. Banks should be lending to people like us.

A few miles away, Yi Ping Lai runs an online business, Heart to Heart Gifts, which sells toys and decorations ranging in price from $6 to $100 for girls up to six years of age.

Last year, her sales passed $1 million. With the downturn, her revenue will end up about 50 percent lower this year. But she will still turn a profit, she says.

In August, she got a letter from her bank canceling her $55,000 business line of credit. She said the bank cited routine credit checks that had reduced her credit score.

All of those credit checks were for legitimate personal reasons, Yi said. For instance, I move apartment and my landlord ran a credit check on me. I tried to explain that to the bank. But they said I was now a risky option for them.

The bank later restored $20,000 in credit. But Yi said she is being hampered in developing a new product line.

I need that cash flow for my business, she said.

Susan Lamping, a senior community loan officer at the nonprofit CDC in San Diego, helped Yi obtain $35,000 in credit.

Financing is extremely hard to come by and many businesses can't get help through the banks, she said.

ECONOMIC BACKBONE

Small business representatives like Todd McCracken, president of the National Small Business Association (NSBA), warn that unless more credit becomes available, America's entrepreneurs cannot expand, hire people and grow the economy.

The situation when it comes to credit is just as bad as it has been for months, he said. But it's now that we see some signs of a potential recovery that we need credit the most. Without credit, the recovery is not going to happen.

Small business is the backbone of America's job market.

According to U.S. Census Bureau data, in 2002 the United States had 112 million workers on payrolls. About 56.4 million of them, more than 50 percent, worked at small businesses.

Such businesses vary in size, but usually have no more than 500 employees, if the company is a manufacturer. Retailers in this category usually have below $7 million in sales and construction firms below $31 million.

During the recent property boom, the same easy credit available to consumers to buy homes with no money down and use them like cash machines as property values rose became available to entrepreneurs to expand and hire people.

Many self-employed people just starting out couldn't get a business loan, said Namoch Sokhom, director of the business development center at the Pacific Asian Consortium in Employment in Los Angeles. But then the bank would point out they had hundreds of thousands of dollars in home equity. They would offer them a personal loan based on that.

But the home equity line of credit, a common source of loans for small businesses during the boom, has dried up.

All of a sudden, unless you had perfect capital, perfect collateral and perfect cash flow, you couldn't get a loan from a bank, said Roberto Barragan, head of nonprofit lender Valley Economic Development Center in Van Nuys, California.

Small businesses also found all existing credit tightened.

Rich Frostig, owner of media consultant Pinnacle Media Relations LLC, said he lost a major client in 2008 and fell behind on his payments on his American Express credit card.

Then the monthly interest rate on his credit card jumped to 27.2 percent from 15 percent. When he complained, American Express told him his rate would be reviewed in January 2010.

I'm going to be looking for a new bank with which to do business, he said.

But two years into the recession, there have been only a few signs that bank credit may be loosening slightly.

In a quarterly U.S. Federal Reserve survey of bank loan officers in July, 3.7 percent of respondents said their lending standards had eased somewhat to firms with annual sales under $50 million, the first easing since July 2007. But 35.2 percent of respondents also said their lending standards had tightened somewhat, indicating there is still a long way to go.

CREDIT CLAMPS STILL ON

Small businesses say they have seen little improvement.

In its half-year survey in July, 38 percent of respondents told the NSBA they had seen a decrease in credit lines or their credit-card limits in the past six months, up from 28 percent in December. Sixty-seven percent said they had been affected by the credit crunch, up from 55 percent.

If you have suffered any kind of sales decline, banks are running for the hills, said George Cloutier, head of Orlando, Florida-based American Management Services Inc, which has 6,000 small business clients in 30 U.S. states. Half of our clients are making 50 percent or less of what they made in 2007.

Even loans backed up to 100 percent by the U.S. Small Business Administration have dried up. So banks are balking at the risk even if the government covers losses.

Sokhom said he arranged more than 500 SBA-backed loans in 2007, which fell to 82 in 2008 and will not pass 50 this year.

Daniel Berch, founder of research company Anything Research, said that some regions of the country have not been as badly affected as others. Small banks were key, he said.

Those with relationships with local banks are suffering the least because when the big national banks pull back, they do so across the board, he said.

Barragan said that to help small businesses grow, the SBA should treat the housing crisis as if it were a natural disaster like an earthquake. He wants the SBA not just to guarantee bank loans, but to lend directly to small businesses.

Otherwise, this situation will feed upon itself, he said. If small businesses can't get credit, they can't hire people and (instead, they) lay off employees. So no one creates jobs, small businesses lose sales and banks won't lend to them. It's a vicious loop that we've got to stop.

(Editing by Peter Bohan and Martin Golan)