A bill that passed last year to revive the secondary market for Small Business Administration 504 loans will kick off soon in an attempt to unlock credit for franchises and small businesses trying to expand.

the Small Business Administration will guarantee up to $3 billion in pools of banks' 504 loans sold into the secondary market. That way, if borrowers fail to pay, investors who bought the loans would be made whole by the government. The SBA expects the program to start soon but doesn't have a firm date ...

Commercial lenders have not been able to sell their portions of 504 loans since investors lost their appetite for asset-backed securities in the financial crisis, prompting many lenders to drop out of the 504 loan program. "In essence that market has not returned," says Kurt Chilcott, CEO of San Diego-based CDC Small Business Finance, a nonprofit that partners with commercial lenders to make 504 loans. "We've gone from at least half a dozen active players who were willing to purchase those loans to maybe half a player," he says. Because banks can't resell their loans, Chilcott estimates that 40% of the banks his firm used to work with have stopped making 504 loans. [BusinessWeek]