New Jersey's small banks will be less reluctant to make industrial real estate loans now that Gov. James J. Florio has signed an environmental shield law.

The law permits banks to foreclose on properties without facing responsibility for a cleanup. Banks were potentially responsible under the state's Spill Compensation and Control Act.

State Banking Commissioner Geoffrey M. Connor says banks already are starting to respond to the shield with loans.

Sees Big Role

Small banks are particularly fearful of environmental cleanups because their costs can far exceed the value of a tainted site. Mr. Connor agrees that many were afraid that such costs could wipe them out.

But he sees a significant role for community banks in any lending resurgence.

"One-seventh of the state's land area is industrial and, of the 43 new banks we chartered in the 1980s, many are in [heavily industrialized] Hudson and Essex Counties."

Small banks with trust departments also will benefit from the shield because they need not fear liability for taking industrial properties in trust, Mr. Connor added.

Gov. Florio, who as a Democractic congressman was a principal author of the federal Superfund law, was hesitant to sign the legislation. But Mr. Connor helped persuade him that the measure will create jobs.

Not everyone is persuaded, however. Although Jack Davis, president and chief executive of $330 million-asset Union Center National Bank in Union, says he now would be willing to issue mortgages for industrial properties, he wonders "where's the demand?

|A National Problem'

"We have scores of properties that were once tool and die shops and the like. But so much light and medium industry is in foreign hands now. Who will want those sites?

"The new law is a step in the right direction," he added, "but I don't know how much power state government has to address a national problem."

The shield law was signed May 7. It will not apply to banks that helped manage a business before foreclosing on its property.

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