A $1.1 billion guaranteed-loan program to help small businesses hurt by defense industry cutbacks tap into commercial markets has backed just $30 million in loans over its first nine months.

The Defense Loan and Technical Assistance Program - known as Delta - is a joint effort of the Small Business Administration and the Department of Defense.

"The main goal of the program is to help all those small defense firms that were growing and expanding and living off the high level of Department of Defense contracting in the middle to late 1980s," said Greg Diercks, the SBA's Washington-based national program manager for Delta.

"The idea of the Delta program is we help them take (their) capabilities and find new commercial markets."

Mr. Diercks said the agency has "just scratched the surface of the program," making just 60 loans since its inception in September.

The going has been slow because of the limited borrower base and the risky nature of the loans, he said. Many defense-related firms have lost significant business in recent years and some even have a negative net worth, he noted.

A 40% plunge in defense and space-related equipment manufacturing between 1985 and 1995 was spurred by a two-thirds cut in Defense Department spending during that period, Mr. Diercks said.

The program uses funds transferred from the defense budget to leverage loans made by participating lenders. Up to 75% of each loan is guaranteed.

"The importance of the program is that the money has been subsidized by the Department of Defense in order to aid those contractors who have been impacted by the downsizing," said Chris Henderson, an SBA-loan officer at California State Bank in West Covina. The bank used the program this year for a $1.25 million loan to an aircraft parts company.

Loans are made through two existing SBA loan programs, the widely used 7(a) general business loan program and the 504 development company loan program, to businesses that previously derived a substantial amount of revenues from defense contracts.

Delta loans must help achieve job retention or creation, or improve a borrower's plant or equipment so it can serve commercial as well as defense needs.

The maximum loan amount is $1.25 million. Funds may be used for working capital, equipment, raw materials or inventory, or capital improvements.

The SBA also will coordinate technical and management assistance to help applicants prepare business plans and loan packages and make the transition into commercial markets.

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