WASHINGTON — As the government puts the finishing touches on a plan that may never be used, Small Business Administration lenders are wondering whether there isn't a more effective way to spend $15 billion.

The Treasury Department is trying to hammer out legal details for a scheme to use Troubled Asset Relief Program funds to buy SBA-backed loans. Officials announced the $15 billion plan in mid-March, when SBA lenders were finding it hard to sell their loans in exchange for funds they could use to make new loans. But that secondary market has since rebounded, and the broker-dealers who buy SBA loans from lenders say they are no longer interested in selling their loan pools to the government.

"The secondary market fixed itself," said Lynn Ozer, a vice president at Susquehanna Bank.

"The market has seen such a rapid recovery in terms of pricing and activity that there isn't the compelling reason to participate," said D. Ann Komar, an executive vice president at Coastal Securities Inc., which is helping the Treasury start the program and is now reviewing the loan-purchase document.

"I don't think the fact that we're considering the document should be an indication that we or anybody else [is] going to use the program," Komar said.

SBA lenders, meanwhile, say they see plenty of other ways the government could allocate the money, some of which might produce returns on the Treasury's investment.

Lenders say the Treasury could use the money to extend fee reductions and guarantee increases in its 7(a) and 504 lending programs or use the money to increase the guarantee limit, thus allowing for larger SBA-backed loans.

"I would think $1 billion of the $15 billion would be a big jump start in the SBA world," said Tony Wilkinson, the president of the National Association of Government Guaranteed Lenders.

Wilkinson said that, although the secondary market plan had been helpful as a motivator in this market (SBA loan prices benefited from the mere idea of a government backstop), setting aside the entire $15 billion for the one program is questionable. "If they put $1 billion in credit subsidies, we could do all of that for a year — and then some," he said, referring to the extensions in fee reductions and guarantee increases lenders are requesting.

Jonathan Swain, the SBA's assistant administrator for communications, staked out a middle ground. "We want to ensure that secondary market activity stays at a healthy level over the long term, and we remain committed to stepping in to make purchases if it becomes necessary," he said. "At the same time, the administration continues to discuss a range of other ideas and possible initiatives focused on continuing support for small businesses at this critical time."

Ozer said the Treasury and the SBA should focus more on other aspects of SBA lending. For instance, she said, the new America's Recovery Capital loan program, in which lenders make $35,000 bridge loans to struggling borrowers, could rack up losses. "They ought to keep that money because, when those $35,000 ARC loans start going bad, they're going to need it," Ozer said.

She also said that regular SBA lending programs could eventually need a subsidy if the SBA were to extend fee reductions for borrowers — a change that has already been touted as having spurred a renewal of SBA lending.

One banker has pitched an entirely new program to help struggling small businesses. Robert Franko, the president and chief executive of Beach Business Bank in Manhattan Beach, Calif., said a "credit restart" program could offer a new loan to businesses that are delinquent on their payments. Many of these borrowers are having trouble getting credit.

"If you take a look at some of the regulatory orders some of these banks are getting, they're basically told, 'Don't lend any more money to anybody, and get these loans paid off either through repayments or chargeoffs,' " Franko said.

But a new, government-endorsed loan could help a struggling small business pull itself through the recession and return to profitability. It could carry a higher interest rate, and the Treasury could split interest payments with the lender, he said.

His suggestion echoed recent calls here to broaden businesses' access to working capital.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.