By Steve Johnson

Would-be entrepreneurs would find it costlier and likely harder to get federal loans under a White House plan that has some lenders, Congress members and small-business advocates worried.

To save money, the Bush administration's budget for fiscal year 2005 would slash federal subsidies for two Small Business Administration loan programs.

Federal guarantees would drop from a maximum of 85 percent to 50 percent on popular 7(a) loans, making them riskier and less attractive for lenders. The program's fees for lenders and loan recipients, which had been redu! ced in recent years to stimulate business, also would be raised to their previous levels.

Moreover, the so-called micro-loan program, which doles out loans of $35,000 or less, would be eliminated.

Doug Heye, a spokesman for the SBA, which supports the changes, said the micro-loans were not widely used and that similar-size loans are available through the agency. Moreover, he said, increasing 7(a) fees would help put that financially troubled program on firmer footing.

"Our No. 1 priority is to be sure the program stays up and running," Heye said.

Rescuing the 7(a) program -- which the SBA suspended for a week in January because of a money shortage -- makes sense to Matt Lathrop, director of government relations for the International Franchise Association.

"What our members have told me is that it preserves the program, and that's the most important thing at! the moment," Lathrop said. "If the program went away, a lot of franchise businesses would go away."

But others fear the changes could hurt small companies.

Some in Congress have been especially critical, including presidential contender Sen. John Kerry, D-Mass, who is on the Senate's small business and entrepreneurship committee.

"These are the most anti-small business proposals we've seen in four years," he complained last month in a news release.

Julie Weeks, executive director of the National Women's Business Council, argued that ending the micro-loan program would disproportionately harm her members.

"Our analysis shows that something like over four in 10 micro-loans are going to women-owned businesses," she said.

Nonetheless, the micro-loan program is relatively small. In ! fiscal year 2003, 115 such loans totaling $2.3 million were made available in California, according to the agency. By contrast, 3,315 loans of similar size totaling $50.4 million were made in the state through the 7(a) program.

Including all sizes of loans, the 7(a) program lent $2.2 billion to California companies in 2003.

Because of the larger number of businesses that depend on 7(a) loans, the proposed changes to that program have sparked the most concern.

The proposed change would increase the fee from 1 percent on the federally guaranteed portion of the loan to 2 percent. Thus, if a business got a $100,000 loan with $80,000 of it guaranteed, the firm would pay a $1,600 fee, twice what it would pay today.

Lenders also would see a slight fee increase, which they would not be permitted to pass on to borrowers.

But the biggest worry stems from the proposal ! to reduce the federal guarantee for 7(a) loans to 50 percent. That might cause many banks to stop participating in the program because their loans would become riskier, said Anthony Wilkinson, president of the National Association of Government Guaranteed Lenders, whose members make a majority of 7(a) loans. And that, he added, could make it tougher for small businesses to get financing.

"Women and minorities are the fastest-growing segment in the 7(a) program," Wilkinson said, "so they're going to be impacted."

If the change in the federal guarantee percentage is approved, many lenders will have no option but to require businesses taking out 7(a) loans to have more collateral, among other things, said Les Crabb, a senior vice president at Heritage Bank of Commerce in San Jose.

"Start-up loans will be, I think, more difficult to obtain," he said. "It will have a negative impact on the small business."