WASHINGTON - Under a proposal by the Small Business Administration, banks that want to make loans guaranteed by the agency will have to pay significantly higher fees.

The plan, announced by President Clinton on Monday, would reduce the agency's 1996 budget by 29%, while also requiring lenders and borrowers to pay substantially higher fees.

"Having the borrower and the bank bear modest increases to move the subsidy down to zero is a way to insure that the money is there," said SBA Administrator Philip Lader.

"We have to keep in mind always that, by their own certification, the banks would not be making these loans without the guarantee," Mr. Lader added. "The borrowers wouldn't have these funds without this program, so there is that tradeoff."

The new program hits lenders with a one-two punch, reducing the size of the guarantee while increasing fees.

On loans of less than $100,000, the plan aims to charge banks a 30- basis-point fee for loans held in portfolio. Only 85% of the loan would be guaranteed, down from the current 90%.

Bankers said the new program would result in some small business borrowers being rejected.

"They are lowering the guarantee, but charging us more to do it," said Jack Goldstein, senior vice president of the $70 million-asset First Bank of Frederick, Md. "There are going to be some small businesses that fall outside of our ability to guarantee them, since the guarantee is lower."

The proposal would also eliminate the rebate that lenders received on half of the up-front guarantee fee for loans under $50,000.

"Basically, they're creating a disincentive for banks to make loans under $100,000, and especially under $50,000," said Mr. Goldstein. Two- thirds of the SBA loans that First Bank of Frederick made during the first quarter were under $50,000. "Banks are not going to consider loans of under $50,000."

With all new fees added in, a private lender would have to pay an additional $3,831 for a $170,000, 12-year SBA loan - the average-size loan in the agency's $5.4 billion portfolio of 244,132 business loans.

The borrower would have to shell out an additional up-front fee of $782 as well as an additional $51 in monthly fees.

"Somebody's got to pay, so any increase in the cost of the program will decrease the attractiveness of the program," said William Gossett, president of Liberty National Bank, a $46 million-asset institution in Longwood, Fla.

"You've got to weigh that against Washington budget constraints, but the old camel's back can only carry so much straw," added Mr. Gossett, whose bank is the largest SBA lender in Florida.

The plan also calls for a 0.5% increase in the interest rate passed through the lender to the agency.

"This affects the lender because it raises the overall interest rate on a loan, and makes loans less competitive," said Herb Spira, tax counsel for the Independent Bankers Association of America. "We are sure that this will require a tightening of underwriting standards, so less creditworthy borrowers are going to be marginalized."

The agency's "LowDoc" - shorthand for low-documentation loans - program will cost banks more under the administration plan as well. To participate in the program, which offers a streamlined one-page application for loans of under $100,000, lenders will face an additional $523 fee.

In a further effort to streamline its operations, the SBA also announced that it aims to centralize loan processing in several centers around the country.

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