Last year Mike Daniel, South Carolina's lieutenant governor, publicly lambasted his state's commercial bankers for their indifference to the needs of small businesses. The banks, he noted, were the lifeblood of the local economy, and he warned that, unless the bankers were prepared to take on a more active role in financing smaller and younger companies, the South Carolina economy would fall even further behind the rest of the United States in growth and prosperity.

At issue, Daniel suggested, was the future of one of the nation's most economically backward states -- one that ranked at or near the bottom of INC.'s state rankings for two years in a row. Since 1980, South Carolina had lost more than 30,000 jobs in the textile and related industries to foreign competitors. The state's political leaders recognized that significant steps needed to be taken to revitalize the economy. The best way to build a more solid economic base, they concluded, was to promote the development of smaller technology-oriented and service businesses. The difficult question was how.

Entrepreneurs are, of course, near and dear to the hearts of politicians across the country. But there are limits to what governments can do, and Daniel, a 44-year-old Democrat, knows it. So he began jawboning South Carolina's financial institutions to become part of the process.

Over the years, says Daniel, the state's bankers had shown themselves to be more conservative than commercial lenders in other parts of the country. He cites banking-industry statistics that demonstrate, among other things, that -- on a per capita basis -- commercial lending in South Carolina is well below that of Mississippi. New businesses, moreover, are being created at a rate less than half that of neighboring North Carolina. And what are the consequences of these facts? Well, says the lieutenant governor, "This is how poor states stay poor."

Daniel may be outspoken, but he isn't the only one who is concerned about South Carolina bankers. Joseph D. Sapp, chairman of Dixie Electronics Inc., a $35-million company based in Columbia, S.C., argues that "Bankers aren't lending money to a lot of businesses in this state that need it." Sapp, who also heads the South Carolina State Development Board, charges that many creditworthy small companies are being rejected for loans. It is an attitude question, he says. "The lenders just aren't interested in taking risks."

It is not surprising that the lenders take a different view. "It's easy to be critical of bankers and to use them as whipping boys," says Robert Royall, president of Citizens & Southern National Bank of South Carolina, the state's second-largest bank, with assets of $2.2 billion. "This is a capital-poor state," he says, at the very bottom of the Southern states in terms of total deposits. And deposits, he suggests, tend to govern what the banks can do. Moreover, he claims that the banks are doing "a fine job" of lending to small business. "Banks aren't in the business of giving money away," Royall says.

The bankers have a point. The top four South Carolina banks have assets totaling around $8 billion, and there are no major sources of venture capital in the whole state. Ironically, however, the dearth of capital may well reflect the financial institutions' own lack of aggressiveness. Banks in other parts of the country expand their capital bases by selling preferred stock and long-term debt, explains Charles Ravenel, a Charleston, S.C., merchant banker. "If [the banks] raised more capital," Ravenel says, "they could serve the market better."

The debate will no doubt continue for some time. Meanwhile, several initiatives have been launched to address the financial needs of smaller companies. In the past year, for example, the state has set up a new agency called the Jobs-Economic Development Authority. JEDA, as it is known, has invested nearly $5 million thus far in about 30 small businesses. Other efforts are under way to channel new private investment into research and development and seed capital.

Perhaps the most important changes on the state's financial landscape, however, won't become apparent for at least a couple of years. Last June, Dick Riley, the governor of South Carolina, signed a reciprocal banking law that will enable banks from 11 other southern states to merge with South Carolina banks, beginning July 1, 1986. Leading bankers, most of whom favored the new banking legislation, believe that the new law will alleviate the capital shortages by permitting new capitalto flow into the state.

Political leaders, including Lieutenant Governor Daniel, agree. Their hope is that a more competitive banking industry will create new financing opportunities for entrepreneurs. "Nobody ever asked the bankers to drop money from a helicopter," says Daniel. "We think that having more financial resources will be good for everybody. It will create jobs and it will benefit the local economies."