Lenders will be plagued by bad debts in their small and medium business loan portfolios for some time to come and growth in their SME portfolios will be constrained for up to two years.JP Morgan senior banking analyst Scott Manning said yesterday that utilisation of existing facilities was holding up SME credit numbers at the moment but new lending growth was falling sharply and that would continue into 2010 as businesses trimmed their capital expenditure plans.Banks have competed aggressively for share in the SME market in recent years but it would be hard to make profits from the sector in the medium term.JP Morgan and Fujitsu yesterday released an SME market report. It says that if past downturns are any guide the period from peak to trough in SME lending could be as long as four years.Fujitsu Consulting executive director Martin North said SMEs were unhappy about the pricing of bank loans and other products, the lack of available finance, and the additional compliance burden - having to make more detailed applications.North said 12 months ago the critical issue for business customers was service, but now it is price.Manning said: "SME rates are higher than they were in the 2001 downturn. Half of the SMEs we surveyed are paying between six and eight per cent and one third are paying more than eight per cent interest on their loans."Rates won't go lower. Long-term rates are going up and the Reserve Bank will have to cut the official cash rate just to keep lending rates where they are."