NEW YORK (CNNMoney.com) -- With sales down and banks reluctant to extend loans without hefty collateral guarantees, many small businesses are strapped for operating capital. Both the House and Senate versions of the economic recovery bill address this pressing issue, but their proposed solutions are wildly different.

The House stimulus plan, passed two weeks ago, focuses on increasing the guarantees that the Small Business Administration makes to banks that issue small business loans. It authorizes the SBA to directly invest in the secondary market that banks tap to sell off bundles of their small-business loans, and it includes a provision for a new direct lending and loan refinancing authority within the SBA. Of the House bill's $820 billion estimated cost, $440 million is earmarked for these small business initiatives.

The Senate, on the other hand, wants to leave the SBA's loan guarantees alone and instead temporarily eliminate the fees the SBA charges for its guarantees. It sets aside $615 million to cover the dropped fees.

The SBA's small microloans program is also a focus of the Senate bill, which passed on Tuesday. The Senate allocates $6 million in new funding for the program - plus an additional $24 million for marketing, management and technical assistance to lenders who make those microloans. All totaled, the Senate's proposed direct stimulus spending on small business initiatives adds up to $730 million, out of the bill's estimated $838 billion cost.

The Senate and House bills will now move to reconciliation, where both sides will attempt to hammer out a compromise bill. Congressional officials and President Barack Obama have said they want to pass a final bill into law this week.

There's no question that the ongoing recession has severely curtailed entrepreneurs' access to bank loans and credit lines, which is the key problem both bills try to address. The SBA's flagship 7(a) program, which insures against default up to 85% of the value of qualifying loans of less than $150,000 (and up to 75% of loans above $150,000), backed 57% fewer loans in its most recent quarter than it did a year ago.

Business owners say banks are freezing credit lines and refusing to make loans. Bank officers counter that they can't extend loans that are unlikely to be repaid. With sales down, many businesses are struggling to make ends meet - and the value of assets typically used as loan collateral, such as real estate, has also declined. Businesses with tight cash flows and little collateral are unable to meet banks' ever-tightening lending standards.

Opening the bank vaults

The House bill would increase the SBA's loan guarantees to 95%, a move officials hope will motivate banks to increase their lending. But Senate representatives are uncomfortable with that approach: "85% is already backed. If we up it to 95%, banks may get comfortable and issue more bad loans," said Scott Schneider, communications director for the Senate Committee on Small Business and Entrepreneurship. "We'll have to look into it further."

The Senate's proposal is to slash the fees that it believes makes SBA-backed loans cost-prohibitive for banks (and for loan applicants, who absorb some of those costs). But the House doesn't think that will work: Owners can't benefit from loans if the banks won't take the risk of making then, which the House doesn't foresee happening without increased guarantees.

Another problem at the bank level is reduced SBA expertise: As loan volumes decline, many banks have laid off their small business loan specialists. Temecula Valley Bank, previously one of the most active lenders, recently shut down its SBA lending. The House bill seeks to assemble within the SBA a team of specialists who can field loan applications for banks - and if bank lenders can't be found for qualified borrowers, the House bill would authorize the SBA to, as a last resort, make the loans directly.

The Senate questions the SBA's ability to execute on that plan. "The issue is that the SBA infrastructure isn't there," Schneider said. "We'd have to make sure that if that's a road we pursue, there would be more people in the SBA who work with loans rather than guarantees. That doesn't exist right now."

The SBA does already have one direct-lending facility in place: Its disaster loan program, which funded $953.7 million in loans last year. (In comparison, the SBA's loan guarantee programs backed a loan volume of $18.2 billion.) The program traditionally assists victims of natural disasters like hurricanes and floods, but after the Sept. 11 attacks, it was used to fund loans to victims suffering economic damage.

In November, Senators John Kerry and Charles Schumer wrote to the SBA's acting administrator, asking why the SBA hasn't tapped the $6 billion it has available for emergency loans.

The SBA, which is currently waiting for a new administrator to be confirmed by the Senate, says its hands are tied until someone officially declares the recession an emergency.

"The SBA doesn't have the authority to declare an economic emergency," said Mike Stamler, director of the SBA press office. "After 9/11, there was physical damage declared in NYC and the surrounding area, and in Arlington and the surrounding area. The SBA was able to broaden the rules to allow it to find businesses around the country that had been damaged by that physical disaster. But here, there's nothing physical we can pinpoint. If the President told us to do it, we'd have to, but it would still take a major scrum of lawyers to decide whether we could do it and how we could do it."

Regarding the rest of the proposals the House and Senate have put on the table, the SBA is taking a wait-and-see approach. What emerges from this week's reconciliation may look very different that what's currently in Congress' two competing bills.

"You don't give farm animals names if they're just going to get slaughtered. Likewise, we're taking the same philosophy with these provisions," Stamler said. "We currently don't have administrative leadership in place to jump out and talk about a moving target."

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