WASHINGTON — Thousands of small, privately-held banks could have access to the $700 billion financial rescue program within "days, not weeks", according to sources familiar with the matter.

The Treasury Department is expected to soon release a term sheet for Subchapter S banks, so-called because of the section of the Internal Revenue code that governs their tax status. The issuance of the sheet will let the roughly 2,500 S-corporation banks, nearly a third of the industry, apply for the Treasury's $250 billion capital injection program.

Interest is expected to be high. Federal banking regulators have already received intense interest from the industry and the FDIC alone is sitting on around 400 applications from S-corporation banks that applied even though they didn't have a formal term sheet.

The release will mark a major victory for community banks and their industry groups in Washington, which have become increasingly frustrated with Treasury's slow pace in drawing up a program. Though large banks and many privately held banks have had access to the Troubled Asset Relief Program for some time, the closely-held S-corporations have been frozen out.

"Particularly if the goal is job creation, you're going to be getting more job creation bang for your buck than some of the other investments," Wayne Abernathy, executive vice president at the American Bankers Association, said about granting the new banks access to Tarp.

Treasury officials have stressed repeatedly in recent months that they were working on a program. The issue was complicated, however, by the fact that S-corporations can only have a limited number of shareholders and cannot issue preferred shares. The latter restriction presented Treasury with a problem; the capital injection programs for publicly-traded firms and private banks with more shareholders both relied on the government receiving preferred shares for its investment.

Treasury Assistant Secretary Neel Kashkari, discussing the issue with U.S. lawmakers last month, said there was a "real legal complexity" on making equity investments in the S-corporation firms.

"And if you can make the investments, how do you get it out in the end so that the taxpayers can get their money back in the future?" Kashkari said.

Specifics of the solution reached were not immediately available, though sources said it could involve some form of debt instrument Subchapter-S banks could issue that could satisfy the interests of Treasury and federal regulators.

"There is a lot of variety of hybrid capital instruments that straddle the debt-equity equilibrium," a staff member from a federal banking regulator said.

The new term sheet is not expected to cover the 500 to 700 mutual banks or mutual holding companies. Banking industry officials said they are already in discussions with the transition team of President-elect Barack Obama to hash out a term sheet for those banks once the new administration takes office.

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