When the Small Business Administration announced its GreenLine program, some predicted it would generate $1 billion in loans in the first year.

So far, those predictions have been about 1% correct. Through Dec. 31, the revolving-line-of-credit program has generated just over $12.4 million in new loans - and plenty of criticism from lenders and others.

"I felt it was a shame we didn't have more input," said Wayne Frederick, owner of WFA Collateral Review Services Inc., a collateral control firm in Houston. "As a result, the SBA came up with a program that is absolutely horrendous."

Mr. Frederick is one of many consultants and bankers who have expressed frustration over the verification and monitoring requirements of the program. Their complaint is that the SBA has created a lot of paperwork and made the program too costly for most traditional lenders.

His advice to lenders: Prepare by structuring a preloan survey to determine whether the loan can meet the SBA's requirements. "The banks getting these loans approved are the ones doing their homework first," he said.

Despite his misgivings about the structure of the program, Mr. Frederick said the concept would be a big help to companies that are heavy into inventory and accounts receivable. In response to the criticisms, the SBA is planning revisions to ease some of the paperwork.

GreenLine is designed to provide short-term working capital loans for a term of up to five years. The SBA will guarantee as much as 75% of the line, with a maximum of $750,000.

Nonetheless, John Cox, associate administrator for the SBA, defends the program. He said that it was never intended for the mass market and that comparisons with programs like the LowDoc program, which generated 13,600 loans worth $315.6 million in its first year, miss the mark.

"I think people look at the LowDoc volumes and think every program should kick off like that," said Mr. Cox. "But the demand for small loans was massive."

On the other hand, he said, GreenLine is one of the niche loan guarantee programs the SBA is using to encourage lending to small businesses. And sometimes it takes time before lenders understand those specialty programs.

One banker who quickly picked up on the program was William Loveland, senior vice president and manager of the specialized industries group at CivicBank of Commerce in Oakland, Calif. The bank was the first in the country to offer a GreenLine loan.

"The GreenLine program has been well thought out, and its instructions are clear, especially if the institution has been doing asset-based lending," said Mr. Loveland. "We do a lot of accounts receivable financing, so GreenLine fits in nicely and complements our other programs."

The $250 million-asset bank has been lending on assets since it got its charter in 1984. With his background as an accounts receivable field examiner and later an asset-based lender with the former Crocker National Bank and Wells Fargo & Co., Mr. Loveland says the program allows the bank to expand its lending base.

"If done prudently, the program allows you to make loans to clients you might otherwise have to decline," he said.

He says three types of companies are targets for the program. The first are fast-growing companies that have heavy demands on their limited cash. The program allows these companies to build their inventory and accounts receivable to meet the growing demands of their customers.

The program is also useful for companies in transition. These companies may not have the kinds of assets or history that make them commercially bankable yet, but Mr. Loveland said they are tired of paying fees to factoring companies that amount to 30% to 60% interest rates.

Finally, there are companies that like the idea of locking in financing for five years. He said this last feature is one of GreenLine's biggest selling points among small borrowers.

But Mr. Loveland warns that the program requires more work from its lenders than the SBA's 7(a) program. Among other things, the bank must be committed enough to perform regular examinations of the borrower's receivables and inventory. This can be done either in-house or by third parties.

The advantage of doing the exams in-house is that the lender gets to keep the full amount of the service fee charged to the borrower. This fee is based on the service requirements of the credit line, the credit risk involved, and loan package assistance.

In California, for instance, services fees average $500 a day. With at least two exams per year, that's an extra $1,000 a year in income per loan.

To make the program more user friendly, the SBA is considering changes, especially for loans under $200,000 in face value. "We are getting away from audits and other costly elements in this program," said Mr. Cox.

Other changes may include adding nontraditional lenders - like nonbank asset-based lenders - if the program does not catch on with its core of bank lenders. However, Mr. Cox did not give a time frame for when this might occur.

But Mr. Frederick says the SBA has not been helping its own cause with GreenLine. For one thing, the agency has not been promoting the program, and with limited staff in district offices, some SBA officers are reluctant to promote the program either.

Another problem expressed by lenders is the lack of a secondary market for GreenLine loans. Because the collateral varies, the loans are difficult to pool.

Nonetheless, some poolers are already looking at ways to securitize the loans. Utah-based Zions First National Bank has already contacted CivicBank's Mr. Loveland about the prospects for pooling GreenLines.

While some aspects of the program appear destined to change, Mr. Cox said the agency is not planning to abandon it because it is off to a slow start.

That's just fine with lenders like Mr. Loveland. "It's a valid program where the purpose of the SBA is to promote entrepreneurial endeavors and help small businesses grow," he said.

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