WASHINGTON — The House voted Wednesday to expand a small-business lending program created by the stimulus package and allow more borrowers to access it.

A bill to reauthorize some Small Business Administration programs included a provision that expanded the America's Recovery Capital loan program, which allows SBA lenders to make no-interest loans of up to $35,000 to help small businesses meet immediate cash needs.

The program currently does not allow businesses to use Arc loans to make payments on existing SBA loans. But the new provision, tucked into a bill House Small Business Committee Chairman Nydia Velazquez, D-N.Y., submitted to extend the authorization of some SBA programs, would lift that restriction.

Though lenders had previously cited the exclusion of existing SBA borrowers as a problem with Arc, it was unclear Wednesday whether lifting it would have much of an effect on the program, which got off to a sluggish start. Some lenders said more changes would be necessary.

"We're hopeful that Congress will consider working capital as a use of proceeds under a revised ARC Program," said Tom Burke, a senior vice president at Wells Fargo & Co.'s SBA lending division. "We are strongly in favor of making the process easier for borrowers and look forward to seeing what comes out of" Congress.

Robert Franko, the chief executive officer of Beach Business Bank in Manhattan Beach, Calif., said the change was a "great idea," though he added, "They also need to increase the amount; $35,000 per loan is not enough to right the ship in many instances."

Lynn Ozer, an executive vice president at Susquehanna Bank, was less enthusiastic."This will not make me any more excited about the program, because it is too burdensome from a paperwork perspective for both the bank and the borrower," she said.

But she said that letting current SBA borrowers in on the program could make the underwriting process a little faster. "Existing SBA borrowers will be more familiar with the requirements for two years of cash-flow projections," she said, citing an information requirement that applies to all SBA loan applications.

The $350 million Arc loan program was initially expected to be a fast-moving and popular stimulus provision, but SBA lenders ran into problems with Arc soon after the program was launched June 15. Rather than burning through the money set aside for Arc loans, SBA lenders have made just over a fifth of the possible 10,000 loans Arc has the potential to fund.

In a statement she delivered before the House vote, Velazquez discussed the paperwork issue.

"As SBA implements this change, it should also revisit other areas where it can improve the program," she said. "A top priority for small businesses is always reducing their paperwork burden."

Velazquez also called on the SBA to recalculate the default rate for Arc loans. A lower expected default rate would mean more businesses could qualify for the program under its current rules.

"The SBA could ensure more funding goes to businesses, instead of being held in reserve to cover defaults that probably won't happen," she said.

Later Wednesday, Velazquez and the small-business committee heard from bankers and business trade organizations about the impact the Obama administration's regulatory restructuring proposal could have on lending to small businesses. Velazquez said she understood the view that small banks should have a lighter regulatory burden than big banks. "This argument seems to carry at least some credibility — the committee should consider it carefully."

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