THE INDEPENDENT BANKERS Association of America is offering an environmental risk insurance program for banks that want to make loans to small businesses that work with chemicals.

The trade group has teamed with Omaha-based Empire First and Marine Insurance Co., which is an A.M. Best A-plus rated company that will underwrite the loans. Also, Proctor Homer Warren, a Troy, Mich.-based firm, will market the program to bankers.

"Bankers are taking a look at it," said Stephen Ello, director of services of the IBAA.

He said 10 institutions have since signed up for the program, which is known as Bankers Environmental Risk Insurance.

Mr. Ello said the goal of the program is to give bankers a higher comfort level when making loans to small businesses like gas stations, printers, and dry cleaners.

Bankers have avoided these loans because they pose too great a risk. If an institution forecloses on contaminated property, it can be liable for the clean-up costs.

"You could be making a $50,000 loan ... but you might have a $1 million liability if there is some kind of chemicals or hazardous waste" on the property, said James R. Lauffer, the trade group's president and chairman and chief executive of First National Bank of Herminie, Irwin, Pa.

Mr. Lauffer said he hasn't yet signed up for the program.

"We are looking at it seriously, he said. "There were a couple of questions we were trying to get worked out."

Under the program, a bank that buys insurance through the IBAA pays premiums that are generally a quarter of the loan balance. The insurance either pays to clean up the property or pays the balance of the loan to the lender.

For a "due diligence" fee of $300, the program also inspects property for contamination. This way, bankers can cut expensive on-site property assessments, which are typically conducted before making the loan.

Mr. Ello said the program won't necessarily be an easy sell. With interest rates still at low levels, bankers aren't making many business loans.

"The other challenge is that it's a new product," he said. "I don't think bankers are real familiar with it. It is going to take time to get bankers comfortable with it."

The insurance program has been in the works for about a year. In March, at the IBAA's annual convention in San Diego, the trade group hosted a meeting introducing the program. About 400 bankers contacted the group for information, but enrollments have been slow.

Last month, the IBAA hired Proctor Homer to market the program.

"We needed somebody out in the field selling the product," Mr. Ello said. "We found that because it was a new product, there needs to be somebody to walk the banker through it and answer questions."

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