President Pushes Banks to Finance Small Companies Businesses Say Ending Credit-Crunch Is Vital, but Regulators Doubt Clinton Policy Will Work. BOOSTING THE ECONOMY

Article excerpt

IN the government's current drive to help create employment for out-of-work Americans, bankers and industry leaders insist that the best tool for rebuilding the nation's job base is entrepreneurs' access to capital.

Small businesses provide jobs for two-thirds of the workers in the United States. President Clinton has recognized that in order to turn the "jobless recovery" into a robust working environment, small businesses must borrow to expand their operations and create new ventures.

Financing for these companies is far more constricted than it is for corporate giants, which have ready access to money by leveraging their massive assets and selling shares to the public. Commercial banks are often the only, if not the ready, source of funds for entrepreneurs.

California Gov. Pete Wilson (R), whose state holds the dual distinction of weathering the nation's highest unemployment rate since the recession began and being the chief spawning ground for small business, says "the absence of credit has drained the state of its vitality."

Urged by political leaders like Governor Wilson, as well as bankers and business executives, President Clinton is moving ahead with plans to make it easier for banks to lend to small businesses by cutting red tape and limiting rigorous loan examinations.

When the initiatives are carried through in the coming months, for example, business owners who pledge property as collateral on loans should not have to go through an expensive appraisal process, and major banks will be allowed to resume making loans to small businesses based on their reputations rather than their financial criteria.

The American Bankers Association (ABA) lauded this decision. "It will instantly allow bankers to make vitally needed loans to creditworthy small businesses that have had trouble meeting the government's magic formulas," says ABA President William Brandon Jr. "This will spur economic growth and job creation while costing the government nothing."

The view from regulators, however, is not so enthusiastic. …