The four largest banks in the U.S. are making good on their promises to increase lending to small businesses.

Bank of America pledged to increase lending to small business by $5 billion this year, and this week reached the halfway point, with $45.4 billion loaned in the first half of 2010. That is nearly $9 billion more than during the same period last year.

Wells Fargo, which owns Wachovia, increased small-business lending by 30 percent last quarter. The bank also said it is taking a "second look" at previously declined applicants.

Meanwhile, Citigroup said small-business lending had doubled at the bank over the last six months, and JP Morgan Chase said its lending (which includes credit cards) was up 37 percent. JP Morgan's goal is to make $10 billion in new loans to companies with under $20 million in revenue – an increase from $6 billion in 2009. According to Bloomberg BusinessWeek, Chase has hired 235 new small-business bankers and made $110 million in "second-look loans" – loans to small-business borrowers whose applications were turned down at first, but got a second review.

The news comes as Senate Democrats worked to pass a bill that would increase lending to small businesses (and President Barack Obama highlighted his small-business agenda with a visit to the Tastee Sub Shop in Edison, New Jersey). But the surge in lending comes as confidence among small-business owners has sunk to its lowest level in seven years, according to a new Wells Fargo/Gallup survey released this week.

The bank's small business index – which peaked at 114 in 2006 – tumbled to -28 this month, down 17 points from April. A score of zero would mean small-business owners are neutral about market business prospects.

Wells Fargo calculates the index each quarter using two factors: a company's present financial health and its forecast for the next year.

The decline was fueled mostly by weakening optimism among small-business owners, said Doug Case, the small-business segment manager for Wells Fargo, which is based in San Francisco.

"Small-business owners are usually a very optimistic bunch," he said in a statement. "But this July we're seeing a real change in future expectations."

The report includes a survey of more than 600 small business owners from all 50 states. There were two "lowest-ever" figures in the 29-quarter history of the survey: 43 percent expect their companies' cash flow to increase, down from 53 percent in the previous quarter. And just 13 percent expect their companies to add jobs, down from 18 percent.

The survey found also found that 38 percent of respondents expect their companies' revenues to increase "a lot or a little" over the next year, down from 48 percent in the previous quarter. Just over a third expect capital spending to fall "a lot or a little" over the next year, up from 29 percent in the previous quarter.

Wells Fargo was surprised at the survey results, since small business optimism had improved slightly over the last few quarters.

"We thought we had hit the low point in the survey," Case said. "That said, things like consumer confidence and other key economic measures are wavering right now. I think the decline is a reflection of the economy overall."