The media has been quick to point out instances where banks have stopped lending to small business clients, either by reducing or eliminating lines of credit, changing terms, upping APRs, or simply refusing loans. The truth is that lending demand has also slowed appreciably, at the same time that banks are looking for ways to reduce risk.

But given all the bad press that is out there, banks are making sure that prospects and clients alike are seeing them less as the villains in a down economy, and more as partners who are in it for the long haul.

Today, to help manage its image despite its crippling losses, Citigroup announced that it is using its TARP monies to fund nearly $45BN in loans. While it is making loans to local governments, municipalities, universities and non-profit hospitals to stimulate local growth, Citi points out that it has been making loans to small businesses as well as consumers.  According to the report, “New lending to U.S. individuals and families, small and mid-sized businesses and large corporations, along with underwriting activity, totaled $120.1 billion in the first quarter of 2009, up from $81.2 billion in the fourth quarter of 2008.”

So what does that mean for small businesses specifically? According to Citi, small business loan balances outstanding rose from $1.1BN in March 2008 to $1.3BN in March 2009. Not much of an increase in the grand scheme of things, but $200MM is enough for Citi to report that it is lending, just like its peers.

The full report, which has the catchy title, “What Citi is Doing to Expand the Flow of Credit, Support Homeowners, and Help the U.S. Economy,” can be found on Citi’s website.