The National Federation of Independent Business, the small-business lobbying group, announced Tuesday morning that its index of optimism among small business owners slid down in June. “Seventy percent of the decline this month resulted from deterioration in the outlook for business conditions and expected real sales gains. Owners have no confidence that economic policies will fix the economy,” NFIB said.

Small businesses have been suffering from low confidence and a constellation of other problems throughout the recession. And the government is actually contributing to the crisis of confidence, the NFIB said. Small businesses are not just suffering from lackluster sales, due to high rates of unemployment and poor consumer confidence. They are concerned that Washington is not doing enough — not extending unemployment benefits, not pushing through big jobs programs, not committing to additional stimulus, not reassuring the markets.

“The U.S. economy faces hurricane force-headwinds and the government is at the center of the storm, making an economic recovery very difficult,” William Dunkelberg, NFIB’s chief economist, said in a release. “The small business sector is not on a positive trajectory and with this half of the private sector missing-in-action, the economy’s poor growth performance is no surprise. Small business owners are not happy about the future of the economy being painted by the administration or economic events. Confidence is lacking and the news out of Washington is discouraging. Until this changes, don’t expect small businesses to start hiring.”

But the report comes just as both the Federal Reserve and Congress are doubling down on efforts to improve business conditions, hiring and the loan situation for small businesses, which have created two-thirds of the country’s new jobs over the past 15 years.

Yesterday, Ben Bernanke, the chair of the Federal Reserve, gave a speech at the completion of a cross-country, in-depth study of small business owners and their needs and concerns. He urged ramped-up lending to companies with fewer than 500 employees, despite the additional risks they pose. (Small businesses tend to default on their loans more often than bigger businesses.) And he stressed the importance of small companies to the economy and the recovery.

Business owners frequently noted that the declining value of real estate and other collateral securing their loans poses a particularly severe challenge. As one business owner at the Detroit meeting I attended put it, “If you thought housing had declined in value, take a look at what equipment is worth.” Business owners cited credit lines and working capital as their most critical financial needs, followed by refinancing products that would permit them to take advantage of low interest rates. Many reported having had to resort to borrowing through their personal credit cards or from their retirement accounts. Several mentioned the need for small-value loans in amounts less than $200,000 as well as the need for “patient capital” from investors willing to commit funds for 5 to 10 years without an expectation of immediate returns…

[It] seems clear that some creditworthy businesses — including some whose collateral has lost value but whose cash flows remain strong — have had difficulty obtaining the credit that they need to expand, and in some cases, even to continue operating. The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment. It is in lenders’ interest, after all, to lend to creditworthy borrowers; ultimately, that’s how they earn their profits. Regulators, for their part, need to continue to work with lenders to help them do all that they prudently can to meet the needs of creditworthy small businesses.

And this week, the Senate is expected to move on a bill designed to increase lending to small businesses through a number of initiatives. Sen. Harry Reid (D-Nev.), the majority leader, addressed the issue on the floor yesterday afternoon:

We know that the best way to create jobs, innovate and help our economy recover is through the private sector.  And we know the engine that runs the private sector is made up of our small businesses. Those businesses are the ones that have felt the most pain in this recession.  Two out of every three jobs we’ve lost were from small businesses.

Our bill — which is fully paid for — will put people back to work through a number of initiatives: One, it gives small businesses tax incentives to help them hire and grow. Two, it increases Small Business Administration loan limits.  Three, it makes it easier for small businesses to export goods. And four, it creates a small business lending fund to that will give small banks more capital.

Another step we’ll take this month is a long-overdue one: extending emergency unemployment insurance for so many who have been out of work for so long. When millions of Americans lost their jobs, they lost their incomes, their homes, their savings, their gas money, their tuition payments, and on and on — all through no fault of their own. Democrats aren’t about to turn our backs on out-of-work Americans, which is why we’re trying to help them keep their heads above water in this crisis.

In that last statement, Reid gets to the real heart of all of these problems: the twin issues of high unemployment and low demand. People are not buying goods from small businesses, because too many are jobless and income-insecure. Businesses are not hiring workers because turnover and profits are low. Banks are not providing credit to small businesses because they are risk-adverse, and recognize the uphill battles most small businesses face.

Unfortunately, the policy solutions considered by the Fed and Congress — coaxing small businesses to hire and banks to lend — are secondary solutions that will not aid that primary problem. Additional stimulus would, but it seems out of the question given Congress’ allergy to deficit-spending.