The Small Business Administration has stalled the planned rollout of a new program allowing lenders to use their own paperwork in exchange for a reduced guarantee.

Small Loan Express is a new program aimed at increasing loans for $100,000 or less to businesses.

Under the plan, lenders will use their own loan products and application processes in exchange for a reduced 50% guarantee on the loan amount.

Traditionally, the SBA will guarantee up to 90% of the loans.

But the rollout of the pilot program was delayed from later this month until January because of questions raised during a training session in Sacremento.

Some bankers questioned whether the agency would still require lenders to collect tax returns and use SBA loan-pricing methods in the new program. SBA lawyers are looking into the issues.

Despite the delay, bankers are anxious to use the program, which is expected to cut the cost of processing small loans by as much as half or an estimated $2,000.

The idea for Small Loan Express was the brainchild of former SBA chief Erskine Bowles after bankers asked him to find ways to smooth out the loan-application process.

"The banks said they would be able to do a greater volume with smaller loan amounts if they were freed up to use their own conventional processes," says Michael Gallagher, manager of government loan programs at Wells Fargo Bank in San Jose, Calif.

The SBA will verify that the borrower is a small business and that the total amount of SBA borrowings does not exceed $100,000 for the borrower, among other things.

Mike Mantle, president of Bank of America Community Development Bank in Walnut Creek, Calif., says the flexibility of the program is attractive because it would allow banks to use their nonSBA products.

"This allows us to structure the loan so that it meets the needs of the borrower, instead of meeting the needs of the program," he said.

So far, 19 banks have volunteered to participate in the pilot program. The majority are money center banks looking to reduce the overhead associated with smaller loans.

While the pilot program promises to do just that, Wells Fargo's Mr. Gallagher believes it could go even further.

"The ideal is that banks could use entirely their conventional processes," said Wells' Mr. Gallagher.

"Due to the SBA's legal restraints, it's not quite ideal (now)," he added. "But we view this as a very positive step."

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