MENDING THE ECONOMY : Clinton Moves to Ease Way for Business Loans : Credit: He orders federal examiners to be more tolerant in their scrutiny of bank lending to small- and medium-sized concerns. The industry welcomes the plan.

WASHINGTON —  President Clinton, unveiling an initiative to end the credit crunch plaguing many small businesses, on Wednesday ordered federal examiners to ease up on lenders and urged bankers to be more generous in reviewing loan applications.

“If you make sensible loans, the government should not come down on you,” Clinton told an audience of bankers and business officials gathered in the East Room of the White House. The Clinton program will:

* Allow banks to make a “basket of loans” to medium and small business “with minimal documentation requirements,” according to the policy statement issued by the White House. Although regulators have not decided on a ceiling for these loans, they will require fewer formal audits and other detailed records that are costly for borrowers.

* Allow banks to accept real estate as collateral without always requiring a certified appraisal, which can be costly. “If someone wants a $30,000 loan, and it takes a $5,000 appraisal, the loan already becomes economically impractical,” a senior Treasury official said.

* Prevent some small-business loans from being lumped together with other more risky loans when an examiner is reviewing a bank’s loan portfolio.

* Encourage banks to consider the “reputation and good character” of potential borrowers rather than relying on strict financial judgments. Harkening back to complaints he heard during the election campaign, Clinton said small businesses too often “face a 10-foot wall” when they try to borrow money.

Bankers welcomed the plan and expressed hope that Clinton will be more successful than former President Bush in persuading the rank-and-file examiners--scarred by the S&L; failures of the 1980s--to become more tolerant in their bank loan reviews.

Repeated admonitions by the Bush Administration--including an extraordinary meeting to which hundreds of examiners were summoned in late 1991--failed to produce any significant change in the tough scrutiny given to bank loans.

Whenever the Republican White House urged an easier approach, Democratic members of Congress warned against the kind of regulatory laxity that contributed to the failure of hundreds of savings and loans and led to a taxpayer bailout of the industry.

Now the Democrats control both Congress and the White House, and the examiners “will get a consistent message from Washington,” Edward L. Yingling, director of government relations for the American Bankers Assn., said after Wednesday’s meeting. “They will get the word that this is what Washington wants to happen.”

Because the President is personally promoting the issue of easier credit for small business, “all the top policy people will feel emboldened” to change their regulatory approach, added Paul A. Schosberg, president of the Savings and Community Bankers of America.

Clinton’s call was warmly greeted by one lender in South-Central Los Angeles, where the effort to rebuild after last spring’s riots has been hampered by a shortage of funds.

“Bank examiners have been pushing for uniform underwriting standards that a lot of our borrowers just can’t meet,” said Paul Hudson, president of Broadway Federal Savings, a black-owned financial institution. “We need more flexibility when we’re evaluating someone’s credit, and that’s what Clinton is promising to give us.”

Jerry Arca, a spokesman for Rebuild L.A., said Clinton’s plan should also make it easier for entrepreneurs to get loans to reopen or expand their businesses.

A general policy statement calling for regulatory easing will be sent to all federally examined banks and thrifts and to staff examiners at all four financial regulatory agencies: Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corp. and Office of Thrift Supervision. Detailed regulations are to be issued within three months.

Most of the changes represent a return to banking procedures that were common before a regulatory crackdown began during the late 1980s, according to Edward E. Furash, a Washington banking consultant.

“This raises the question whether this so-called regulatory relief opens the door to a return of bad banking practices,” he said.

But Nestor Weigand, an official with the National Assn. of Realtors and a broker in Kansas, said Clinton’s plan “won’t encourage banks or S&Ls; to repeat past mistakes.”

“The President didn’t tell lenders to make bad loans to Third World countries, or to start buying junk bonds again,” Weigand said. “All he’s doing is making it a little bit easier for people and small businesses to get a loan, and it won’t cost the government a cent.”

Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, applauded the President’s goal of expanding small-business loans, but offered a cautionary warning. “The trick,” he said, “is to ensure that lenders are not tempted again to become casinos.”