WASHINGTON — Less than a month after it was unveiled, the Obama administration's plan to revive the secondary market for Small Business Administration loans is in jeopardy.

Since the Treasury Department is funding the plan with $15 billion of Troubled Asset Relief Program funds, broker-dealers and other participants would have to comply with executive compensation limits and issue warrants to the government. As a result, most of the large broker-dealers have said they do not want to participate, according to sources. Without their participation, the plan would almost certainly fail, observers said, leaving the Treasury scrambling to come up with alternatives.

"I know the administration is aware of it, and the message I am getting is they are working on options to get over this hurdle," said Anthony Wilkinson, the president of the National Association of Government Guaranteed Lenders.

Broker-dealers would be unlikely to budge, Wilkinson said. "The ones that don't already have Tarp, the answer is going to be no, unless the pricing is so attractive that they can't say no."

Under the program announced March 16, the Treasury pledged to use allocations from the economic stimulus package to increase the government guarantee on SBA loans to 90%, cut borrower and some lender fees and buy up 7(a) loan-backed securities to reboot the secondary market. Banks initially greeted the plan warmly, seeing it as a way to get such loans off their books and originate new ones.

In a fact sheet offered March 17, the Treasury said loan purchases were supposed to begin by the end of the month. But the fact sheet said all participants would have to comply with congressionally mandated restrictions on compensation and issue warrants to the government.

The warrants may prove the more controversial of the two conditions. The Treasury's language was vague, saying the pricing and exact nature of the warrants would be revealed at a later time.

The conditions have already spooked the four large private SBA broker-dealers — Cantor Fitzgerald LP, Vining Sparks IBG LP, Coastal Securities Inc. and Shay Financial Services Inc. — which, according to sources, have all indicated they have no plans to participate in the program.

"I don't think anyone's going to do that," said Scott Taylor, a vice president in Memphis for Shay Financial Services.

Once the Treasury revealed that broker-dealers would have to issue warrants in order to participate, Taylor said, the program became so unappealing that he stopped following news on it.

Representatives of Cantor, Vining and Coastal did not respond to requests for comment.

Other broker-dealers, such as SunTrust Robinson Humphrey Inc. and Regions Financial Corp.'s Morgan Keegan & Co., are owned by financial institutions that have already received Tarp money.

They have submitted to the executive compensation restrictions that accompanied the Tarp injections, but the broker-dealer subsidiaries still find the warrants rights requirement too onerous.

Mike Wheeler, the managing director of SunTrust Robinson Humphrey's fixed-income trading desk, said it is waiting for final clarification on the program's details before ruling it out. "I can't make a decision if I don't have clarity," he said, and the language in the March 17 guidance sheet was "vague" about whether a company that had already taken Tarp money, such as his brokerage's parent, SunTrust Banks Inc., would be under additional obligations.

Wilkinson said some banks with broker-dealer subsidiaries are taking this approach: "We got Tarp money. We're trying to give it back as fast as we can. We don't want any more."

The SBA and Treasury said they are working to address the issue.

"We expect to release the program's terms and structure shortly," a Treasury spokesman said.

But the program's possible failure is leaving some lenders in a lurch.

Temecula Valley Bancorp, a $1.5 billion-asset California lender, has halted its 7(a) program, because it cannot sell the loans to the secondary market. On March 17, the same day the Treasury put out its fact sheet, Temecula announced that it was undercapitalized and had to shrink its balance sheet. Despite the increase on the portion of SBA loans guaranteed by the government to 90%, help will not be coming in the form of more SBA business for Temecula.

"The only way we will be able to start to originate again is if we can sell the loans into the secondary market at a decent premium," said Frank Basirico, its CEO. Last year Temecula was the eighth-largest 7(a) lender, but "we're going to have to stay on the sidelines for a while."

A Delaware nonbank lender, Preferred Capital LLC, was also counting on the program's success. Rocco Perate, its president and CEO, said the secondary market was his biggest source of capital.

"We're looking into 'Do we convert to a bank? Do we partner with a bank?' " Perate said. "We have looked at this as 'It's not really going to work for us.' "

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