It will come as no surprise to many entrepreneurs, but getting financing to grow a small business is now more of a mission impossible than ever.

“It’s looking for a yes in a no business,” says Jeff Barker, New York City Market president for Bank of America. Not only have banks tightened lending terms, but CIT Group Inc., a source of funding for thousands of small businesses, filed for bankruptcy protection earlier this month. Even the Small Business Administration has cut back on loans. The agency made 110,000 loans totaling $20 billion in 2007, while making only 50,000 loans totaling $13 billion in 2009.

The difficulties the small businesses have in raising financing are illustrative of a national trend: banks are just not lending. That aversion to risk may be understandable from their point of view. Many banks suffered near-death experiences and still have on their balance sheets toxic assets caused by risky lending for subprime residential mortgages and commercial real estate.

After making wildly risky bets earlier this decade, banks—many of which received billions of dollars in bailout money from taxpayers—are now playing it safe and are building up their reserves. That makes sense for the damaged banks, but is bad for the economy. Unemployment, now at 10.2 percent, can’t really recover until small businesses, which account for 56 percent of GDP, start hiring again. For that, small business needs to get its hands on capital, but that is now harder than ever in the past 40 years.

Just ask Link Howard, the CEO of Powerlink, a specialty cleaning firm in Detroit that services mainly health care facilities. With annual turnover of $10 million, Powerlink has been trying to raise $5 million to make acquisitions. "Raising money is more difficult than it was two years ago," Howard says. “It’s hard for everybody, but it’s particularly hard for service companies.”

He shared his thoughts while looking for capital at an event organized by the Initiative for a Competitive Inner City (ICIC), a Bank of America funded nonprofit that helps small firms raise capital by pitching their businesses to angel investors, venture capital firms, and private equity funds.

“Traditional sources of funding are limited because companies relied in the past on bank loans and they now need to look for alternative sources of financing,” says Deborah Shufrin, director of programs for the ICIC, which convened at Bank of America's gleaming new office tower in New York.

The event attracted 50 small businesses ranging in size from $250,000 annual sales to more than $70 million. The companies were allowed to pitch to 32 investor funds in several different venues, including a “speed dating” exercise that gave the companies just five minutes to make their pitch and then were critiqued by the potential investors.