By Marcia Heroux Pounds

The Small Business Administration loves to trot out successful start-ups financed by the federal agency. From Holiday Foods, a gourmet foods business begun by a struggling widow in Hollywood, to the national restaurant chain Outback Steakhouse, success stories are the bread-and-butter of the SBA.

Yet proposed changes to the SBA's flagship loan program could slice financing to start-ups.

Lenders say the 7(a) loan program already is hamstrung by a cap of $750,000. The situation will deteriorate, they say, if the SBA drops its guarantee to 50 percent of loan value from the current 75 percent to 85 percent.

SBA Director Hector Barreto Jr. has proposed lowering the guarantee. "A 50 percent guarantee ... will allow us to increase lending authority," explains Doug Heye, spokesman for the SBA in Washington, D.C.

The 50 percent guarantee seems to be working well enough for the SBA Express program, which has increased to 54 percent of all 7(a) loans nationally and 74 percent of loans in the South Florida District. But small businesses can get loans only up to $250,000 under that program, which offers a quick turnaround and doesn't require collateral for loans of up to $25,000.

Start-ups would be hurt the most by reducing the guarantee, observes Martin Zients, who teaches finance for the SBA's Small Business Development Center at Florida Atlanta University in Boca Raton.

A lower guarantee also could spell problems for small businesses that need to borrow more than $250,000. Some lenders say their requirements would tighten for these riskier loans. The result? Fewer loans to small businesses.

"We're frustrated and the clients are frustrated," says Rick Von Minden, a small-business lending specialist for Temecula Valley Bank in Coral Springs. "We're limited in what we can do."

Jodi Polonet, senior vice president of Business Loan Express, says the restrictions now in place and a lower guarantee are "very frightening. We feel the rug was pulled out from the small business owner."

After a record year of loans, the SBA's 7(a) program shut down for about a week in early January: Money was running out and the agency was awaiting federal budget approval. After an extension was received, lenders were back in business, but loans were capped at $750,000 and thousands of loan applications were caught between the cracks.

To help borrowers, lenders have shifted some business owners to the SBA's 504 loan program, but not everyone qualifies. The loans must be used for purchasing land, renovating existing buildings or purchasing machinery and equipment. The 504 program cannot be used for working capital.

Legislation pending by Sen. Olympia Snowe, R-Maine, could help remove the cap and again allow loans up to $2 million. The bill also would enable lenders to offer piggyback loans.

But lenders say that legislation doesn't completely fix the problem. Chris Lehnes, vice president at CIT Small Business Lending, says a business owner's home equity may not be enough collateral to secure a loan under a 50 percent guarantee. "There's $25,000 home equity in the house but we're making them a $200,000 loan," Lehnes says as an example.

Would a lower guarantee increase the number of loans to small businesses or shrink them? There are as many opinions as there are politicians in Washington. But a change that could stifle small business seems ill-timed.

"Everyone knows small businesses are one of the best stimulants for the economy," Polonet says. "This flies in the face of that."