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Small businesses in particular are "feeling the pinch" from a lack of access to money they need to help fund their operations, Carcieri said at the time.

In general, the proposal would let a qualifying small business take a credit against its Rhode Island income tax liability for the guarantee fee paid to the SBA for an SBA-backed loan.

In general, the fee can range from 2 percent to 3.75 percent of the guaranteed portion of a loan, said Mark S. Hayward, the SBA's Rhode Island district director.

So if a business seeks to borrow $100,000 in principal amount, and the SBA were to guarantee $75,000 of that loan, the borrower might have to pay a $1,500 fee, Hayward said. (The example assumes a 2 percent fee, but the actual fee may differ depending on the nature of the loan and other factors, he said.)

Under the proposal, the borrower in this example could claim a state tax credit of $1,500 - which, in effect, would generally reduce the business's state tax liability by that amount.

At a House Finance Committee hearing, Sherri Carrera, manager of small-business services for the Rhode Island Economic Development Corporation, said that a number of small businesses have cited the cost of, and access to, capital as their top concern.

Restoring the credit would help small businesses grow, she said.

William Farrell, legislative counsel for the Rhode Island Bankers Association, testified that the credit "would be one more tool, one more opportunity" for small businesses to obtain the capital they need.

Paul DeRoche, vice president of government affairs for the Greater Providence Chamber of Commerce, said that the credit would serve as a stimulus for the state's small-business community.

If enacted, the credit would be retroactive to Jan. 1, and could cost the state about $275,000 in tax revenue for the year ended June 30, and about $500,000 for the year that starts July 1, said Michael O'Keefe, House fiscal adviser.

State Rep. Steven M. Costantino (D-Providence), chairman of the House Finance Committee, suggested that small businesses might be better off if the SBA simply did not levy the fee.

Costantino also advised those who back the proposal to write to President Obama, and others who are crafting a federal economic stimulus plan, to have the fee scrapped or reduced.

"I just find that it's interesting that the state is sacrificing revenue for a federal program," Costantino said.

The state faces a $357-million budget deficit for the year ending June 30.

The state tax credit had been in effect from 1994 to 2004, Hayward said. The General Assembly repealed it in 2004.

Three states have similar tax credits in place, O'Keefe said.

In general, SBA loan guarantees are sought for loans that a lender ordinarily would not make because of the risk involved, Hayward said. (That may be because the borrower has insufficient collateral, or has posted losses, Hayward said.)

In such circumstances, the lender may ask the SBA to guarantee up to 75 percent of the loan's principal amount, he said.

In effect, the SBA would agree to pay a portion of the soutstanding balance of the loan should the borrower default, Hayward said.

(So if all of the business's assets were liquidated, and the loan had a $50,000 balance remaining, the SBA might have to pay up to $37,500.)

The proposed state tax credit is part of Carcieri's supplemental budget for the year ending June 30, and incorporates elements of his economic stimulus plan for small businesses, including the tax credit.

The House Finance Committee did not vote on the proposed credit. It is in the process of holding hearings on Carcieri's supplemental budget, and will vote at a later date, said House spokesman Larry Berman.