• Increase the maximum loan for building expansion or modernization—a 504 loan—from $2 million to $5 million for most borrowers, and from $4 million to $5.5 million for manufacturers.

• Offer more funds, at lower rates, to community banks with less than $1 billion in assets. Funds would be offered to the banks at 3 percent, rather than the current 5 percent.

The funds would come from the $700 billion Troubled Asset Relief Program. TARP was originally intended to assist the nation’s largest banks. Small businesses shed 2.4 million jobs from the middle of 2007 through the end of 2008.

John J. Phelps, executive director of Rockford Local Development Corp., a nonprofit that makes SBA loans to small businesses, says expanding the size of the maximum loans will be a “big deal” for existing businesses that may have hoped to expand their operations but were bumping up against the old $2 million loan ceiling.

“This opens up a whole new world for them,” he says. “They’ll be able to come back into the program and then get the capital they need to stay in business.”

“It won’t help the little deli on the street corner,” he adds, “but for a lot of midsize industrial companies with sales of $3 [million] to $10 million a year, it will be a big development.”

Tom Budd, president and chief executive officer of the Rockford Bank and Trust, says a loosening of SBA credit won’t necessarily bring new business to the bank. Like others in the Rockford area, he just doesn’t see a large, unmet need for capital, because would-be new businesses fret about sufficient demand for the goods they might produce.

Instead, the new SBA modifications will allow his loan officers to help modify and restructure loans for his most hard-pressed customers—giving them more time to pay and at lower rates—which may in turn allow them to stay in business. “Anything we can do to lower monthly payments has been really appreciated,” Budd says. “Our borrowers are very excited about it.”

“Yes, there is a credit crunch,” Budd adds. “It’s not that banks don’t want to make loans. It’s that they don’t want to make bad loans.” He says banks like his are caught between the government’s desire to boost lending and regulators who want to ensure banks don’t make too many bad loans.

Nor does getting an SBA loan ensure that an entrepreneur will succeed.

For Peggy Brier, 54, the jury is still out. She and her husband, who was unemployed, used an SBA loan to build out a vacant space and open a sandwich shop and cafe in the only large shopping mall near Rockford. “We wanted something better,” Brier says, “so we looked for an opportunity we could afford to get into. To do any sort of startup these days, you really do need an SBA loan,” she says.

However, business has been modest since her franchise of Camille’s Sidewalk Cafe opened in June, with 15 part-time employees, including Brier’s son and daughter. She now fervently hopes the Christmas season brings droves of shoppers into her restaurant. “I’m holding my breath over that one,” she says. The holiday shopping period “will make or break us.”

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