The news on the credit market remains bleak, according to a Wall Street Journal report ($) today, stating that bank lending in the U.S. saw its sharpest drop since 1942. Increasing bank lending is key to the Obama administration’s goal to help small businesses create jobs.

The latest report on lending from the Federal Deposit Insurance Corp.,(FDIC) shows the banking industry is still struggling even though the economy shows signs rebounding from the recession.

FDIC statistics also said 702 banks are in danger of failing, a 16-year high; more than 5 percent of loans are past due, the worst performance since officials began tracking data 26 years ago. There were 140 bank failures in 2009. It is expected to exceed that number this year.

Small businesses are seeking alternative funding sources like factoring accounts receivables so they can survive and grow.