Above, bankers listen as Governor Carcieri outlines a far-reaching economic stimulus package for small and midsize businesses. At left, House Speaker William J. Murphy sits next to the governor during the State House news conference.

PROVIDENCE — Governor Carcieri yesterday unveiled a far-reaching economic stimulus package that includes new loans for cash-thirsty small businesses, a first-of-its-kind loan guarantee program — and maybe a state tax break, too.

The package is intended to help tackle two key problems with which small and midsize firms are grappling: a recession and a credit crunch.

Small-business owners have described their frustrations to Carcieri and other government leaders at meetings in recent weeks.

In response, Carcieri yesterday outlined a six-part stimulus package that includes these elements:

•A pledge by eight banks and credit unions that do business in Rhode Island to make $165 million in new loans available to small and midsize Rhode Island businesses during the next two years. Their effort will be monitored by the Rhode Island Economic Development Corporation.

•A commitment by the same banks and credit unions to plow $2.4 million into an existing small-business loan fund, which the EDC oversees, thus creating the opportunity for additional loans.

•An increase of at least $240,000 — and perhaps as much as $700,000 — in the amount that the EDC’s small-business loan fund sets aside for “micro loans” — of less than $50,000 — for very small businesses, many of them run by “young, new entrepreneurs,” Carcieri said.

•State-backed guarantees for certain small-business loans. The guarantees — which would mainly supplement loan guarantees by the U.S. Small Business Administration — are intended to help reduce loan risk to lenders. Guarantees would generally range from 15 percent to 40 percent of a loan’s principal amount. The program, if approved by the General Assembly, would be capped at $25 million. If adopted as proposed, it would be the only one of its kind in the nation, said Mark S. Hayward, the SBA’s Rhode Island district director.

•Restoration of a state tax credit to help small businesses cover the cost of certain fees they pay involving loans that are guaranteed by the SBA.

•A pledge by the Business Development Company of Rhode Island, a non-bank lender, to provide up to $5 million in loans to businesses that need more in financing than their senior lenders are willing to provide.

Overall, the plan is intended to provide more than $200 million in new sources of capital for small businesses that are struggling amid a global economic downturn and rising unemployment.

“These are tough times,” Carcieri told nearly 100 business and government leaders, and others, at a packed State House meeting room yesterday.

And small businesses — which represent 90 percent of all businesses in Rhode Island and employ 25 percent of the work force — are being squeezed, Carcieri said.

Together, the package’s provisions will encourage banks, credit unions and other lenders to make more money available to small businesses, Hayward said. “It’s critical that we keep our lenders in the game,” he said.

It will also signal to businesses that money is available, said J. Michael Saul, the EDC’s interim director. “Small business needs to know that credit is flowing,” he said.

Business leaders reacted favorably. Laurie White, president of the Greater Providence Chamber of Commerce, said that the package will result in “more loans and more business activity” in Rhode Island.

The package also provides “an important psychological boost” by urging small businesses to come forward, and letting borrowers know that “there is credit available,” she said.

Grafton H. “Cap” Willey IV, chairman of the Rhode Island chapter of the Smaller Business Association of New England, said the package is “sending a good message” to businesses and to lenders.

“It’s extremely important to Rhode Island that they boost the small-business economy, because that’s what’s going to drive us out of the recession,” said Willey, a certified public accountant and shareholder in Tofias P.C., a regional accounting firm.

If small businesses get the loans they need, they will “put the capital to work to create jobs,” he said.

As Carcieri outlined the provisions of the program yesterday, House Speaker William J. Murphy and M. Teresa Paiva Weed, president-elect of the Senate, sat close by — an indication of their support.

By one measure, there are about 57,000 small businesses in Rhode Island, Hayward said. But in the face of slumping revenue in the recession, many small businesses are having trouble obtaining the cash they need to meet payroll, pay vendors and cover other required expenses, he said.

Sales are down but fixed costs remain, and a number of small businesses have seen their traditional lines of credit frozen, said Marilyn Bogue, the SBA’s assistant district director.

Lenders that have agreed to take part in Carcieri’s initiative for $165 million in new loans include Bank Newport, Citizens Bank, Coastway Credit Union, Bank Rhode Island, Navigant Credit Union, Randolph Savings, Washington Trust and Webster Bank.

Those lenders have pledged to make new loans, ranging from a total of $5 million to $25 million per institution, to small and midsize Rhode Island businesses. This element in the package begins immediately; the EDC will begin monitoring progress next month.

Small Business Stimulus Plan

•$165 million in new loans from eight local banks.

•$7 million for state’s small business loan fund.

•Expand state microloans of less than $50,000.

•$25 million loan guarantee program.

•Reinstate tax credit on SBA-backed loans

•$5 million in gap loans from Business Development Co.

National Economy

Developments

Debt: U.S. households have cut their debt levels for the first time on record. A6

Jobs: New claims for unemployment benefits in the country jumped to a 26 year high last week. D1

Auto Bailout: Efforts last night on Capitol Hill fail to reach a compromise on a $14 billion aid plan. A2

ndowning@projo.com