The Small Business Administration next year will have 19% less money to support $8 billion in lending guarantees, but Joseph J. Loddo, district director for the agency's Providence, R.I., office, is upbeat.

For one thing, he believes his office will keep its guarantees growing at the fourth-fastest rate in the agency's network. He also has reason to believe that market penetration, which stands at 15%, will increase.

Smallest Loans Often Shunned

That's because Mr. Loddo has developed a plan to stimulate business lending in the $5,000 to $50,000 range. The Rhode Island Area Small Business Loan Program will rely on a private entity to ease paperwork burdens for banks, which have had a rough time in the state.

Since Jan. 1, 1991, the state has lost 48 depository institutions, and the 17 banks remaining, like many of their peers throughout the nation, often shun the smallest business loans because their profit margins tend to be slender, at best. Nevertheless, "It's the |five-to-50' loans we need to create jobs," Mr. Loddo maintains.

SBA Would Liquidate

His district is asking the 15 banks making SBA loans in Rhode Island to contribute to a revolving line of credit for the business loan program.

Contributions would be based on deposits, and applicants would be prequalified by the Ocean State Business Development Authority -- a private, nonprofit group licensed by the SBA to package and service fixed asset loans for the agency.

If the authority found an applicant eligible, he or she would be referred to a bank for a credit decision. If the application were approved, the bank would seek a 90% guarantee from the SBA and then disburse the money out of the contributions -- with the development authority handling both servicing and closing.

In the event of a default, the liquidation would be handled by the SBA.

"The beauty of this is that we'd be using our existing 7a program for working capital, inventory, leasehold improvements, and equipment," says Mr. Loddo.

He adds, "Clearly, banks would satisfy the Community Reinvestment Act mandate in terms of making |5-to-50' loans."

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