Jim Bren says that until early this summer. he and associates at the Madison, Wis., office of the Small Business Administration thought they knew their market pretty well.

As assistant district director, Mr. Bren believed the SBA's niche in the rural parts of his region was for loans of $100,000 or more. That all changed in June.

That's when the Madison office became certified to process loan guarantees under the SBA's new low-documentation, or LowDoc, program. Targeting loans of less than $100,000, the program allows lenders to apply for the SBA's loan guarantee on a one-page application.

All of a sudden, lenders started coming out of the woodwork.

"We've signed up banks that we haven't done business with for years," said Mr. Bren. "There's an untapped market we hadn't realized was there."

Though the program is still in the testing stages, it has already generated 5,860 loan approvals worth nearly $315 million. The program's average loan is just under $50,000, compared to the $250,000 average loan size for the SBA's traditional 7(a) program.

The SBA believes the program is reaching borrowers who in the past were unable to obtain credit.

A survey of borrowers released in August showed that 20% of the new loans were going to minority-owned businesses. Another 25% went to women-owned businesses.

The program is also reaching companies typically shunned by bankers. Nearly half the loans generated by the program are going to companies in rural areas, and more than two-thirds are going to start-up businesses.

"That's almost the reverse of the companies we were reaching before," Mr. Bren says.

In Stillwater, Okla.. Susan Kerns, a vice president with the 100-year-old Stillwater National Bank and Trust, a $350 million-asset bank, says LowDoc has helped the bank reach start-up companies in the retail and service sectors.

"They are the businesses that are easy to get into," says Ms. Kerns. "But our bank has always been very willing to make smaller loans."

The program is helping lenders with quicker turnaround. The one-page application is simpler than the stacks of documentation traditionally required by the SBA. The approval or rejection comes quickly, often in less than a week, and the form can be handled by fax.

The reduced paperwork is an innovation expected to make the program more profitable for lenders by slashing the amount of time spent filing out forms.

Salli Martyniak, economic development officer at Firstar Bank in Madison, estimates that it takes about a day to prepare a LowDoc application. This is half to one-third of the time required to complete a 7(a) application.

Nonetheless, Ms. Martyniak says the bank is preparing only one LowDoc loan a month on average. That's about one-third the volume of the bank's 7(a) program, which is projected to lend $12 million this year, nearly double its 1993 performance.

The reason is that the bank generates the same amount of paperwork internally for a LowDoc loan as it does for a 7(a)loan, even though the application is only one page.

"When we put a package together, we have to ask for follow-up material from the borrower," she says. "We wouldn't be doing our job as a lender if we didn't get this information."

With the less strenuous application process and interest rate surcharges of as much as 2% on loans below $25,000, there is concern that some SBA lenders may .accept loans with too much risk, says Stillwater National's Ms. Kerns.

"It's a question that's on everybody's mind because the SBA has lessened up somewhat on its credit standards for this program," Ms. Kerns says. "We haven't seen that yet, but the program is still pretty new. We'll just have to wait and see what happens in a couple of years."

But Rodney Martin says the SBA has taken steps to ensure that. problems are avoided.

As district director in San Antonio, which ran the LowDoc program for its first seven months, Mr. Martin processed nearly 2,630 LowDoc loan applications worth $142 million over the past year. The pace sometimes led Mr. Martin's staff to process as many as 50 applications a day.

Mr. Martin says the SBA is performing spot checks on lenders to ensure that they maintain proper documentation and credit quality. Even then, he points out it is only loans below $50,000 that can get by with the one-page application. Above that amount, lenders must submit their internal loan reports, three years' income tax returns for the borrower, and personal financial statements for principals and guarantors of the borrower.

"That is our safety net," says Mr. Martin. "We're very satisfied with the quality of applicants coming from the banks."

Besides raising questions about credit quality, the popularity of the one.page application has created other problems. Darryl Schuster, president of the central division of Emergent Business Capital Inc., says that marketing efforts have led many borrowers to believe the one-page application applies to them instead of the lender.

"The applicant thinks the application process is simpler than in reality it is," he says.

Despite the glitches, the program is considered a success. So much so that Congress is expected to make the LowDoc program permanent. The only question is when.

For Mr. Bren in Madison, the program has already paid dividends.

"This has been a terrific program for getting us into a market that we hadn't been in before," he says.


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