The U.S. economy is showing signs of improvement, but the problems confronting community banks may hinder the growth of small businesses, The Huffington Post reported.

Many small banks are facing balance sheets full of troubled commercial real estate loans, meaning small businesses, even those with good credit and solid growth potential, are finding it difficult to secure financing from those lenders.

The Obama administration estimates that 70 percent of U.S. jobs are created by small businesses.

So as community banks struggle to set aside enough reserves to cover mounting losses, leaving less cash available to loan to small businesses, that could spell trouble for the broader economy.

Last week, the Federal Deposit Insurance Corp. (FDIC) disclosed that it has 860 troubled banks on its radar, up from 829 during the summer. The vast majority of those are smaller financial institutions.
The FDIC considers about 11 percent of the banks it regulates to be at risk.
“There are plenty of banks out there, unfortunately, who cannot make loans, or are being very tight with their credit,” said Ray Davis, CEO of Umpqua Bank in Portland, Ore. “They’re either weakened, or the FDIC said to them, ‘You cannot make any more loans, and if you do, you’re in trouble. You cannot expand, you cannot grow.’”

“It’s a vicious cycle,” said Edward Friedman, an economist at Moody’s. “Commercial real estate crashed, and the small local banks themselves became insolvent or got on the target list.”