U.S. commercial banks are reducing their lending at an accelerating pace, with loans to businesses falling at a 28 percent annual rate over the past three months, MarketWatch reported.

Small businesses, which have less access to other funding sources such as retained earnings, corporate bonds, securitized loans and new equity, are more affected by the reduction in lending than larger corporations.

“Most importantly, some significant classes of borrowers – namely commercial real estate and small business – are almost wholly dependent on the banking sector for funds, and those funds are not easily forthcoming,” said New York Federal Reserve Bank President Bill Dudley in a speech this week.

If small businesses are unable to secure financing, said Melinda Pitts, an economist for the Federal Reserve Bank of Atlanta, “then the post-recession employment boost these firms typically provide may be less robust than in previous recoveries.” Small businesses have accounted for 45 percent of job losses in the early part of this recession.

Banks are pointing to weaker demand as the primary reason for the decline in lending, followed by diminished creditworthiness of borrowers.

Though fewer small businesses have plans to expand, invest or hire than at any time in more than 30 years, according to the National Federation of Independent Business, many still need credit to continue their operations and refinance their debt.

The largest banks have raised billions in new capital, Dudley said, but they are “still capital constrained and hesitant to expand their lending.”