On the first glance, the U.S. Small Business Administration's latest loan program -- called Section 503 -- looks like an all-around good deal.

For businesses, it's a chance to get long-term loans at below market rates. For SBA, it's a chance to guarantee 40 percent of its loans instead of the standard 90 percent. For banks, it's a chance to make loans that have more protection than exposure -- and they don't have to deal with SBA.

Local development authorities like the program, too. They can use it to help small businesses grow -- and generate jobs (and local taxes).

Last week, Fairfax County's economic development authority got the go-ahead from the SBA to set up a Local Development Corporation that will disburse money to established small businesses. There are already 300 local development companies around the country.

Montgomery and Prince George's counties also expect their local development corporations to be approved in a matter of months and Fairfax County's agency is expecting another go-ahead to disburse federal money throughout Northern Virginia.

And though suburban chambers of commerce and economic development officials brim with enthusiasm about the Section 503 program, their good cheer would be dampened if they looked at the District of Columbia, which has had its local development corporation since February 1981.

If the District's program is an indication, the new program is plagued by the same old woes that have menaced other SBA programs.

"The program is very rigid," says Hugh D. Mason III, who runs the District's local development corporation, which is part of the mayor's office. To qualify for the loans that can go up to $1.25 million, businesses have to present files of financial statements that prove their fiscal stability over the last three years. "How many small businesses do you know that can go back three years and come up with good financials?" says Mason. In almost two years of operation the District local development corporation made only four loans for a total of $3 million.

Section 503 is aimed at helping established small businesses of less than $6 million net worth and profits of under $2 million to get long-term financing to buy real estate and fixed assets.

But rigid requirements are only a part of the District's problem. "We don't have enough staff. In fact, I am staff," says Mason, who expects two more financial analysts to join him shortly.

Mason says it takes him a week to evaluate each application and when a good application comes along, he stops processing and starts filling the blanks on forms to the SBA. That takes two weeks. Meanwhile, other applications pile up.

Mason estimates it takes his office 16 weeks to get SBA approval for loans. "It took three months for every paper pusher to sign his name on the forms," said Peter Ross, president of Oriental Spectrum Ltd., an importer of brass and home decoratives, whose firm got about $500,000 through the new program.

Last March, after months of paper shuffling, Ross' loan was finally approved by SBA. But that wasn't the end of it. The agency told Ross he wouldn't be able to go to settlement until his building was completed.

Ross took out a six-month construction loan and his building on the corner of New York Avenue and North Capitol Street was finished by the end of July. He was ready for settlement with one full month to spare.

But when Ross went to SBA asking the agency to go to settlement he was in for a disappointment. "We had four weeks' delay because someone in SBA was on vacation," said Ross. Meanwhile, his construction loan came due.

Ross, who finally asked for--and got--forbearance from his bank, needed yet another month to get the settlement off the ground. "To do this I have incurred $20,000 in legal fees," said Ross. "And the reason it's only $20,000 is because my lawyer . . . couldn't believe it himself."

"Had SBA known about Ross' problem at an earlier point, the problem could have been resolved," said Wayne Foren, who runs the SBA's Section 503 program.

Foren, whose intervention finally saved Ross' loan, says he knows of no cases of banks foreclosing on interim construction loans. "That's like cutting off your nose to spite your face," says Foren. "Whenever there is a problem with a bank, we call the bank and ask them to roll the loan another month."

Ross says he would never have applied for SBA assistance "if I had known what I know now."

But Ross, whose firm does $1 million in sales a year, got a loan for an amount he couldn't have received without SBA assistance. And the interest he will pay on his loan will be below prime.

Jerry Davis Jr. took the bureaucratic process more stoically. "With all you have to go through, some people might get discouraged, but that's what the law requires and you do it if you want the money bad enough" said Davis, president of United Services Inc., a janitorial company that took a $647,000 SBA-guaranteed loan to buy and renovate a warehouse at the intersection of Rhode Island Avenue and Reed Street NE.