A Connecticut program to encourage small-business lending is being expanded statewide.

Three years after launching the Urban Banking Initiative, or Urbank, in the state's five largest cities, the Connecticut Development Authority is now making the loans available to companies with 100 or fewer employees anywhere in the state.

The purpose of the program is to boost job creation and retention, said John Lobon, vice president of the development authority and managing director of Urbank.

Though a key goal is also to increase lending to minority and women- owned businesses in particular, most of the loans have gone to others.

The program provides a reserve fund to back up each bank loan and offers a 20% state guarantee for loans made in 25 specified municipalities.

State officials hope the fund and guarantee will give banks "an incentive to do small-business loans ... that they would not normally do" because of collateral shortfall or inadequate cash flow, Mr. Lobon said.

The maximum loan allowed under the program is $500,000, but banks can make loans of up to $250,000 without prior approval from the state agency.

The loans, which can be for as long as 15 years, are limited to agricultural, industrial, service, commercial, and retail businesses, and properties must be owner-occupied. No speculative financing is permitted.

For each loan, the borrower must contribute to the reserve account an amount equal to 2% of the loan principal, and the bank must add 2.5% or make the borrower do so. The state agency then puts in 5% and charges a 0.5% fee to the borrower.

If a borrower defaults, the bank can dip into the reserve fund to recoup its losses, so it's in the banks' interest to make enough of these loans safely to build up an adequate reserve, Mr. Lobon said.

The 20% state guarantee is limited to so-called targeted business loans made in Bridgeport, Hartford, New Haven, Stamford, Waterbury, and 20 other municipalities plus the entire counties of New London and Windham.

Through May 31, the program had $13.9 million in 176 loans, 38% of which were to minority and women-owned businesses. The average loan amount has been about $78,000. About 2,400 jobs have been created or retained as a result of the loans, Mr. Lobon said.

Thirty-one banks are participating; Mr. Lobon said he hopes to attract more.

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