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Last month, the U.S. Small Business Administration launched a program offering cash-strapped small businesses short-term, interest-free loans of up to $35,000. So far, few lenders are participating in the program and only a handful of borrowers have sought the help.

The America's Recovery Capital Loan program was funded to the tune of $255 million by the American Recovery and Reinvestment Act, the stimulus package enacted in February. Through Thursday, 919 loans totaling $29.9 million had been processed nationwide under the program, according to William McMullen, regional communications director for the SBA region that encompasses Maryland, Virginia, Washington, West Virginia, Pennsylvania and Delaware. That's an average of $32,535 per loan. It also means that at least 6,400 loans are still available.

But only three loans have been processed in the SBA's Baltimore district, with only two in the Washington, D.C., district. The Baltimore district encompasses all of Maryland except Montgomery and Prince George's counties, which are included in the Washington district.

Baltimore district lenders participating in the program were BankAnnapolis, Easton Bank and Trust, and SunTrust. A BankAnnapolis representative declined to comment and several attempts to reach officials at the other banks for comment were unsuccessful.

McMullen attributed the low numbers in Maryland to the program's newness.

"It is still an educational process and it has a very narrow focus," McMullen said of the program.

Banks may also be limiting loans to only their own customers, McMullen said, but he expects the program will gradually expand as more businesses grow comfortable with it. During the recession, few small-business owners are looking to take on additional debt unless they absolutely have to, he said.

Chris Olson, a business counselor at the Frederick branch of the Maryland Small Business Development Center, said the quickness with which the new loan program was introduced surprised both bankers and small-business owners.

"Banks are still playing catch-up with learning about the program and deciding if they want to take part in it," Olson said.

Every business that wants to apply for one of the new loans may not be eligible, he said, as borrowers must be operational for at least two years and have been profitable for one of those years.

Eligible businesses must also have a good credit rating, Olson said. He is hopeful that as word of mouth about the program spreads and banks continue to promote the loans, more businesses will explore the program.

A number of viable businesses are experiencing financial hardship, according to Stephen Umberger, director of the SBA's Baltimore district office.

"If sales are down, [businesses] still need to pay vendors and need an immediate cash injection," Umberger said.

EagleBank of Bethesda, with branches in Maryland, Virginia and Washington, has received one inquiry from a business owner while also fielding a few calls from non-borrowers, said Robert Hoffman, executive vice president.

"The volume seems to be less than anticipated," he said.

However, after consulting with SBA officials, EagleBank bank has decided not to participate in the loan program, citing costs, Hoffman said.

"We aren't allowed to charge any processing fees on the loan or late fees if the borrower is late with a payment," he said.

EagleBank typically processes its SBA loans through outside counsel to ensure compliance with SBA regulations. However, the bank would have had to process the new loans itself and absorb the cost, Hoffman said.

William W. Hill, executive vice president of Sandy Spring Bank's commercial banking group, said the Olney bank was working with small businesses to obtain other SBA loans before the new loan program was introduced.

"We are a very active SBA lender and are very interested in helping businesses do anything to weather the tough times," Hill said, adding that the new loans are designed to help businesses make debt payments.

There may be a Catch-22 for potential borrowers who are saddled with significant debt.

Banks look at an applicant's ability to repay the loan, Umberger said, and the recession may have damaged business owners' personal credit ratings.

"If they have been late on payments, most banks will not give them a loan," he said.

The prevailing sentiment to tighten belts during rough economic times might be one factor behind the lack of participation in the new SBA program, speculated John P. Hollerbach, founder and CEO of Harvest Bank of Maryland in Gaithersburg.

"They may also not be getting through the underwriting process or they may not be qualified," Hollerbach said of small businesses.

The new program has been off to a slow start, acknowledged Rachel Howard, business development specialist and public information officer for the SBA's Baltimore district office. However, banks are becoming more active, she said.

"We have been working with local lenders over the past month to encourage their participation in the program and are pleased to have gotten a great response from the community banks," Umberger said in an e-mail.