Gov. Jay Nixon is banking on a batch of $2 million in small business loans to kick start the state’s economy.

The Democrat on Monday announced the state would begin taking applications for his micro-loan program, which is aimed at increasing small business owners’ access to capital during the recession.

Businesses with up to five employees will be able to apply for loans between $2,500 and $25,000 at an interest rate of 3 percent to be paid pack within 10 years.

A local economic development executive said he’s turned away new business owners seeking modest seed money for items like computer software or hardware and other basic equipment after the banks rejected them, too.

“These small businesses that need $5,000 or $10,000 for their startup, a lot of times banks are hesitant to loan those funds because they don’t have a lot of collateral,” said Tom Bliss, executive vice president of Mo-Kan Development Inc.

For a young entrepreneur fresh out of college who needs that money upfront, “What are your options? Your parents or Mastercard or Visa,” Mr. Bliss said.

Republican Lt. Gov. Peter Kinder this spring said he was concerned the loans would pose cash-flow problems for a $25 million tax credit proposal the Missouri Development Finance Board already had approved for the Kansas City Chiefs. It’s the same proposal that may bring the team’s summer training camp to St. Joseph.

The board in April authorized the Department of Economic Development to go ahead with the program after members and the department investigated its finances, which they described as strong enough to handle both.

“Small businesses are the engine that drives Missouri’s economy, and our economic difficulty has hit those businesses hard,” Mr. Nixon said in a written statement. “In order for those businesses to do more than merely keep their doors open, for them to actually create new jobs to grow our economy, small business owners need access to capital.”

Mo-Kan Development Inc. in St. Joseph has requested $150,000 for the loans in Andrew, Buchanan, Clinton and DeKalb counties, based on prior interest. Green Hills Rural Development Inc. has requested $200,000 for Harrison, Daviess, Caldwell, Livingston, Grundy and other counties.

But Mr. Kinder, contends the small loans are risky and most likely won’t be paid back.

“Two-million dollars wouldn’t go very far in helping Missouri to create jobs,” said Gary McElyea, a spokesman for Mr. Kinder. “It may be best just to offer these up as grants.”

However, Mr. Bliss pointed to the regional success of a federal program for small business loans, the Economic Development Administration Revolving Fund, which offers assistance in amounts from $20,000 to $200,000.

“The default rate has been very low,” he said. “There’s been tremendous success locally.”

Alyson E. Raletz can be reached

at alysonraletz@npgco.com.