Banks apparently view private equity and hedge funds as better candidates for loans than small businesses.

The Federal Reserve just released a new quarterly report, the Senior Credit Officer Opinion Survey, stating that banks have grown more eager to lend to the funds — on easier terms.

“Dealers (lenders) indicated that they had generally loosened credit terms offered to important groups of clients — including hedge funds and other private pools of capital,” the report said.

“Dealers also noted that efforts by clients to negotiate more favorable terms had increased in intensity.”

It sounds like private equity and hedge funds are more than happy to play hard ball in loan negotiations with banks which are desperate for their business.

Small businesses aren’t so lucky.

Bank loans to them dropped below $670 billion in the first quarter of this year from more than $710 billion in the second quarter of 2008, The New York Times reports.

Experts offer a range of reasons for that drop.

“How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability?” Federal Reserve Chairman Ben Bernanke asked in a recent speech.

“No doubt all three factors have played a role.”