By JOHN ZICCONI Vermont Press Bureau

MONTPELIER - When Vermont Pepper Works' Rancho Ancho pepper sauce
earlier this year beat out more than 600 other specialty food products
to win a national award, the tiny Fairfax company had its seminal
moment. But it probably would not have happened if owner Jeff Mitchell
did not receive a $13,000 high-risk loan from the Economic Development
Council of Northern Vermont five years ago.

The St. Albans organization is one of three based in Vermont that
administer an endangered Small Business Administration loan program
designed to place investment capital in the hands of risky business
ventures that do not qualify for traditional bank loans.

President George Bush wants to eliminate the program, which annually
makes $40 million available nationwide to local economic development
groups so they can both train and lend money - up to $35,000 - to
entrepreneurs with little business experience.

The "micro-loan" program pumps an estimated $500,000 a year into the
Vermont economy, and has a 12-year track record of spawning successful
small businesses like Vermont Pepper Works that otherwise might not have
gotten off the ground. The program, unlike traditional capital sources,
lends money to those who have no collateral, an imperfect credit
history, little business experience and a low to moderate income.

Mitchell in 1999 fit this bill. Banks turned him away, but they did
steer him to the Economic Development Council, which not only lent him
money but provided free financial counseling to ensure he formulated a
sound, long-term business plan. The training and money were essential to
his company's success, Mitchell said.

"When I look back at my orig-inal business plan I just laugh," Mitchell
said. "I could not see myself where I am today without help. Would I
still be in business? I don't know. But the help I got definitely played
a major roll in the success of my business."

Vermont Pepper Works now produces four products and also provides
packaging assistance to other specialty food entrepreneurs. Its products
can be purchased in more than 200 specialty or health food stores
throughout the Northeast as well as on the Internet.

Mitchell's story is not unique, but it may be endangered. If the SBA
micro loan and training program is eliminated, many would-be
entrepreneurs will be left with no place to turn except high-interest
credit cards, said Connie Stanley-Little, executive director of the
Economic Development Council of Northern Vermont, which issues $300,000
annually in micro loans.

Banks loans come in many varieties with interest rates between 3.5
percent and 7 percent, but federal regulations prevent them from giving
money to high-risk business ventures. SBA micro-loan programs can assume
greater risk, but offer loans at a higher interest rate, usually around
11 percent.

Borrowers have six years to pay the money back. Businesses do default,
but the numbers are not high, Stanley-Little said.

"The SBA gets its money back," Stanley-Little said. "We have well over
$1 million in loans out there from this program. The average is $11,000,
and we have less than a 2 percent default rate."

The SBA nationwide this year will issue $20 million in loans to high
risk businesses - $10 million less than in 2003 - and make another $20
million available for training. Bush's 2005 budget eliminates all
funding. Vermont businesses receiving SBA micro loans include a soap and
body oil manufacturer, mini mart, saw mill, photography company, yarn
shop, an appliance store and many others.

"The President's plan to eliminate these SBA assistance programs is both
short-sighted and irresponsible," said Sen. James Jeffords, I-Vermont,
echoing the sentiments of both Sen. Patrick Leahy, D-Vermont, and Rep.
Bernard Sanders, I-Vermont.

"These programs help low- and moderate-income Vermonters acquire needed
job skills to achieve self-sufficiency," Jeffords said. "Faced with an
ever-mounting budget deficit and a costly war, the president is cutting
programs for people who need help the most. The president needs to
reconsider his priorities."

Jeffords, Leahy and Sanders hope to protect the micro-loan program.

Leahy, a member of the Senate Appropriations Committee, sits on the
subcommittee that reviews the SBA, but his aides predict tough sledding.

More will be known in August, when the budget is complete, they said.
Nationwide, micro-loan lenders like the Economic Development Council of
Northern Vermont have lent more than $213 million to about 19,000
entrepreneurs since the program began in 1992. In 2003 alone, nearly
2,500 loans were processed at an average size of $12,300. Nearly half
the loans, which totaled $30 million, were given to start-up businesses.

The micro-loan program is believed to have created over 60,000 jobs
nationwide.

Exact Vermont figures are unavailable, but local micro lenders as well
as organizations that provide technical assistance say about $500,000
annually is pumped into the local economy.

Mitchell called the program vital to businesses like his, and said he
hopes Bush will reconsider his decision.

"It's a huge mistake to eliminate the program," he said. "It would be
bad for the economy and bad for businesses. If people like us can't get
this money, we can't operate our businesses. We would be stuck washing
dishes or something. It would be limiting people's creativity."

Contact John Zicconi at john.zicconi@timeargus.com.