(FORTUNE Magazine) – WILL RECOVERY be delayed or stalled for lack of credit? No, most banks and other lenders are ready to give credit where credit is due -- to good customers for attractive projects. Talk of a credit crunch, which has grown louder in the last month or so as the recession has deepened, overstates the banks' reluctance to make sound loans. And it exaggerates the difficulties businesses or consumers can expect when the economy begins to grow again. Consider Humphrey Products of Kalamazoo, Michigan. Like many companies with solid credit ratings and good banking connections, Humphrey had no trouble arranging financing to buy computerized machining equipment recently. The company makes pneumatic valves and cylinders for industries from medical equipment to heavy trucking. CEO Randall Webber shopped around for financing but got the best terms from First of America Bank-Michigan, where Humphrey has done business since 1901. Says Harry B. Storr, First of America vice president: ''The so-called credit crunch has been blown out of proportion. Credit is still available to creditworthy borrowers.'' While a number of major money-center banks like Chemical and Citicorp are so undercapitalized they can't make major new commitments, most commercial banks are in a position to keep lending. Despite the worst year in nearly a decade for the industry, Bear Stearns's chief economist, Lawrence A. Kudlow, points out that 85% of the nation's commercial banks ''make decent money.'' And most seem willing to satisfy customers' borrowing needs. Two-thirds of the banks queried by the Federal Reserve Board in January reported that they haven't tightened credit standards for commercial and industrial loans since the last survey three months earlier. Of the other one-third, a majority said they had tightened only ''somewhat.'' For most banks a lack of good projects in a recessionary environment seems to be the problem, not a fear of lending. Small community banks are also reluctant to expand lending much until they find out which of the Administration's proposed reforms will go into effect and how much they will hurt. According to Ken Guenther, executive vice president of the Independent Bankers Association, small banks especially fear the proposed cut in deposit insurance coverage. ''About 25% of the deposits of our members are over $100,000,'' Guenther says, ''and many customers keep several accounts just under $100,000.'' These people might feel safer keeping their money in a big bank if the Treasury limits an individual's coverage to a total of $100,000 regardless of the number of accounts the person holds. If banks lose deposits, they have trouble making loans.

A package of accounting guidelines will be announced any day by the banking agencies. That should go a long way toward removing the uncertainty banks feel about what the regulators will do to them. Small banks have the money they need to invest, adds Guenther, ''so if they have a resolution to some of these problems, they will be more inclined to lend.'' The heavy hitters among the FORTUNE 500 have all heard the talk about a credit crunch, but the problem has hardly touched a sampling of major companies we contacted. Robert C. Williams, head of James River Corp., said the paper company has deferred some large projects because the financing ''got to be extremely difficult if not impossible to do.'' But few others mentioned hardships. Dow Chemical's Frank Popoff says, ''It hasn't affected us, and to date I don't know too many people with worthy projects that have been unable to get financing.'' And Kent C. Nelson of United Parcel Service points to his company's AAA rating, saying, ''We have had no problem and don't anticipate one.'' Surprisingly, small businesses aren't feeling the crunch much either. In a January survey by the National Federation of Independent Business (NFIB), only 4% of member firms reported paying higher rates than they did the last time they borrowed; that was down from 9% in the previous quarterly survey. Only 11% said that credit had become harder to get, the same as before and far fewer than in the 1974-75 or 1980-82 credit crunches. Still, NFIB President John Sloan says he has heard complaints from members, especially about high interest rates. ''Only one rate makes a difference, and that's the prime,'' he says. But Sloan concedes that the worst may be over: ''Now at 9%, the prime rate is getting low enough that it might spur some loan demand.'' Midsize companies, which are too large to rely on a local community bank and must stand in line behind big borrowers at larger banks, might be expected to have the most difficulty with credit these days. But the Fed's survey, which covers the five or so biggest banks in each of its 12 districts, shows only a marginal difference between the banks' restraint of credit for large corporate customers and middle-market companies. And the recent drop in the prime rate will help, even if borrowers have to pay a somewhat fatter spread above prime than they used to. Another advantage for midsize businesses: Banks aren't the only game in town anymore. Westinghouse Credit and GE Capital are among the numerous companies that are competing to lend to companies of this size (see Money & Markets). Such lenders now account for more than 25% of business credit. Jack Parker, chief financial officer of NS Group, an operator of steel mini-mills, dealt with GE late last year when NS Group purchased a shuttered plant in Koppel, Pennsylvania, that it plans to refurbish. Such a facility might not have looked too promising to some lenders -- including, Parker believes, Pittsburgh National, the company's bank. But ''GE Capital was very interested to know that our company had the experience of restarting another plant in the past,'' he says, ''and the terms were competitive.'' The addition of the Koppel mill will significantly expand the company's product lines sold to oil patch customers, among others. SO WHERE'S the crunch? The serious squeeze appears to be confined to real estate developers, which have raised a fuss about credit shortages with some justification. Even the best of them can't get a dime for a commercial venture virtually anywhere in the country. But attaching the credit crunch label to the problems of developers misses the point. The real estate recession is a result of too much credit, and the overbuilding that went with it, not too little. The demand for offices and stores in hard-hit places like Boston, New York City, and Oklahoma City will take years to catch up with what's already built and standing vacant. Even in less troubled areas, vacancies are high, real estate values are slipping, and lenders have no appetite for any risk at all. For example, Hines Interests, a Houston-based developer, recently + scrapped plans for a 750,000-square-foot tower in Detroit. The reason: It couldn't get financing because Comerica Inc., the principal occupant, planned to take little more than half the space. Since a severe credit crunch is hard to find outside the building industry, it is difficult to explain the increasing outcry about one. Worried business executives may be taking their cue from Fed Chairman Alan Greenspan's appearance before the House Banking Committee at the end of January. At that time he talked about the ''increasingly worrisome process of credit restraint.'' But feverish concern about a credit crunch is likely to fade soon. More recently, Greenspan told the directors of the National Association of Manufacturers that the most important reason for the cutback in lending is that consumers and companies do not want to borrow for spending and investing. What's more, unless oil prices spurt, the near-term outlook for inflation should remain positive. That will give the Fed room to push interest rates down another half a percentage point or so. And bank executives should calm down once they are clearer about the mission of the lads from Washington. So business shouldn't be hampered by a shortage of funds when the expansion gets rolling.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: BANK LOANS LOAN DEMAND SLIDES The sharp decline in bank lending reflects reluctance by business to borrow more than hesitation by banks to make loans.