The Obama administration should spend more money from the $700 billion bank rescue on programs to increase lending to small businesses, said Senator Mark Warner, a Virginia Democrat on the banking committee.

Warner and other lawmakers are pushing regulators to consider ways to jumpstart credit to small companies, which he says is dwindling even after efforts to provide government support. The senator urged action at a meeting of the Senate Democratic Caucus yesterday.

Treasury Department officials said they are in discussions with Warner, Senator Mary Landrieu, a Democrat of Louisiana, and Republican Olympia Snowe from Maine, on how to address the issue, either through the Troubled Asset Relief Program or new legislation. A $15 billion program to purchase pools of small- business loans, announced in March, has attracted little interest even though it’s ready for use, an administration official said.

“The original notion of the TARP was, we were going to help Main Street by bailing out Wall Street,” Warner said in an interview. “We’ve seen Wall Street recover, but we have not seen Main Street reap the direct benefits.”

President Barack Obama’s administration is weighing policies to arrest a decline in jobs that spans 21 months and put 7.2 million people of work since the recession started in December 2007. To date, most of the bailout money has gone directly to companies including Bank of America Corp. and General Motors Co., and a stimulus package has yet to reverse an unemployment rate forecast to eclipse 10 percent by early next year.

$136 Billion Left

According to the Treasury, about $136 billion of the $700 billion TARP was available for new programs as of Sept. 29.

Warner said the department needs to make funding for small businesses more directly available to banks because of a “desperate need” for access to credit. He said he has prepared his own proposals and indicated he’s open to other options.

One idea would be to use $10 billion from the TARP, alongside $5 billion from participating banks and $35 billion from the Federal Reserve’s balance sheet, to provide banks with dedicated funding and share in any long-term losses. Other versions would use the Federal Deposit Insurance Corp. to work with small banks on putting TARP money to use.

Warner said the government needs to go beyond previous initiatives, which target securitized lending and loans guaranteed by the Small Business Administration. Neither of those avenues is likely to encourage small-business lending, he said.

“We’ve seen some programs, not always effective,” Warner said. “I have been concerned. I’d like to see faster action.”

Job Creation

The SBA defines a small business as those with fewer than 500 workers and attributes about 64 percent of all job creation in the U.S. in the past 15 years to such firms.

The administration has not yet settled on its next avenue of small-business lending aid. The administration is weighing options that include using TARP funds, extending elements of this year’s $787 billion stimulus funding or pursuing fresh legislative authority.

“While congressional consultations have involved varying different ideas and details, it is safe to say that we’re all basically rowing in the same direction,” Gene Sperling, a counselor to Treasury Secretary Timothy Geithner, said in an interview.

The Treasury’s existing program, announced in March, still hasn’t officially started. Initial purchases could take place within weeks, if the Treasury decides that a small-scale demonstration would invigorate the market, an administration official said.

Using TARP

As proposed, the Treasury would use as much as $15 billion in TARP funds to purchase pools of loans backed by the SBA. Treasury officials said the program helped regardless of whether any purchases ever take place.

The Treasury already has developed an agreement and term sheets to discuss with prospective market participants, although those documents haven’t been made public, the administration official said. Loan purchasers have been reluctant to take part because financial markets are on the mend, and because of concerns about TARP-related oversight and executive-compensation limits.

FDIC Chairman Sheila Bair also has floated new ideas for expanding small-business lending. In a Senate Banking Committee subcommittee hearing yesterday, she said the initiative could be linked to other efforts to make TARP funds more available to community banks, such as providing new capital to banks able to attract private investment.

“We’ve suggested a dollar-for-dollar matching program,” Bair said. “This would be an additional validation of viability from the market if the market is willing to put additional capital in, help provide some additional protection to Treasury. Perhaps make the terms a little less onerous. This could perhaps be tied to increasing small-business loans.”