Almost unnoticed amid the hundreds of billions lost in the savings and loan crisis and the tens of billions lost or at risk in government-backed student loans, farm credit and home mortgages, another federal loan program has run into trouble and faces hundreds of millions of dollars in losses.

The program is run by the Small Business Administration and finances entities called small business investment companies. Known as SBICs, these outfits raise equity capital from private investors and combine it with government-guaranteed loans to provide seed money for promising small and startup businesses.

Over the years, SBIC money has helped companies ranging from Federal Express and Nike to Cathy Hughes and her Washington radio station WOL. While many economists argue that such enterprises or ones like them probably would have come into existence without SBIC financing, politicians and small-business lobbyists are more likely to reach for superlatives in describing such programs. Chairman Dale Bumpers (D-Ark.) of the Senate Small Business Committee noted recently that the program's success stories have produced enough federal taxes and jobs to justify "the entire cost of all SBA programs."

In 1984, for example, 10 companies originally fueled by SBIC capital paid almost $200 million in taxes and employed over 53,000 people.

" ... There is probably not another government program anywhere which has had such stellar successes as the SBIC program," Bumpers said.

But in recent years, the picture has changed. Several big SBICs, including Springfield-based River Capital Corp., and numerous small ones have gone broke, sticking the government with much of the bill because of the business loans that it had guaranteed. As a result, SBIC program losses have exploded, climbing 382 percent since 1980 to the point where the cost to the government could reach $800 million.

Some 170 SBICs are in liquidation, leaving the government with a potential loss of up to $563 million, and a study of a group of 50 operating SBICs suggested that 23 had moderate to severe financial problems that could add another $306 million in possible losses.

In addition, the SBA has been severely criticized for failing to supervise properly the liquidation of some failed SBICs, including one in which some SBA officials formed a company to take over a Colorado ski resort owned by a dead SBIC.

The officials were "honest and dedicated government employees," said another SBA official, who apparently hoped to maximize the recovery for the agency. But agency procedures were so loose that the officials, one of whom was in the general counsel's office, did not know that what they were doing was illegal, this official said.

SBA Administrator Susan S. Engeleiter and other top officials, who admit that the problems are real, are scrambling to put the program back in order. However, some losses, they contend, are to be expected.

SBICs are "the highest risk program that SBA has, and probably one of, if not the, highest-risk lending programs in the entire federal government," said Bernard "Berky" Kulik, SBA associate administrator for investment.

But that kind of risk has been present since the program's founding in 1958. Why has it come home to roost so suddenly?

One reason, said Engeleiter, is "spotty government oversight and supervision of the program" -- an explanation frequently heard for the savings and loan debacle.

As currently structured, the program tends to encourage thinly capitalized SBICs -- those with a minimum amount of investment from private sources -- to "leverage up" by making maximum use of their government-guaranteed borrowing ability. The result of this heavy indebtedness is often a cash-flow crunch later on if even a small number of investments goes sour or takes too long to generate profits.

Before being granted a government license, an SBIC must round up a substantial sum of private money -- at least $1 million -- and have invested 65 percent of it in small businesses. After it gets its license, an SBIC may qualify to borrow as much as three times its private capital.

This borrowing is not done directly from the government, but from the private capital markets through a complex process orchestrated by the SBA. The government doesn't put up the money, but it does guarantee repayment.

The problem is that SBICs commonly fund small businesses by buying stock. This stock isn't likely to pay much of a dividend or be worth much on the open market until the small business succeeds, which may be a long time or never. But the SBIC must make its own debt payments, and if its investments perform poorly or it doesn't balance its portfolio properly, it will default and the SBA will liquidate it.

At that point, the SBA pays off the SBIC's guaranteed debt and tries to recover as much of its loss as it can by selling off the SBIC's assets.

SBICs can also be forced into liquidation if the value of its private capital declines by 50 percent (75 percent for certain ones aimed at minorities). SBIC proponents point to the 1987 stock market crash, along with the bursting of the high-tech bubble, for many of the SBIC problems.

In many cases, the assets of the SBIC -- the value of the stock in the companies it has invested in -- have turned out to be worth dramatically less than the SBIC had led the SBA to believe. In fact, in a number of cases, SBICs appear to have been effectively broke long before the SBA learned they were in trouble. SBA officials explain that portfolio valuation is one of their most difficult problems because it is so difficult to tell what a startup business is worth now -- their stock is not traded on any stock exchange -- or may be worth in the future.

"Some of these SBICs that have invested in firms that have taken off, like Federal Express and whoever -- they may have had to sit on these investments for a long time before they finally kicked in," said SBA General Counsel Sally Narey.

" ... That's what makes it sort of a tricky program. How do you value these investments? Because they have a low value at a certain point does not mean that later down the road they're not going to pay off. On the other hand, you need to keep an eye on them so that if they start to go bad you know about it early and you can take action."

Far from keeping an eye on its charges, however, SBA has had almost no one watching.

It turns out that the SBIC program is so poorly staffed that just 29 SBA employees regulate some 389 active SBICs, with a total loan exposure to the government of $2.1 billion. And for the 170 in liquidation, only five SBA staffers have been available to sell the stock and other assets of failed SBICs for which the government, in effect, had to pay $500 million as part of the loan guarantee program. The agency ultimately hopes to recover more than half that sum when the process is complete.

The SBA is scurrying to polish its image. Engeleiter is shifting more staff into the SBIC office, and pressing Congress and the Office of Management and Budget for more. The agency's inspector general is doing on-site examination of certain SBICs and demanding a financial and regulatory disclosure statement from the others. The agency also has imposed a moratorium on the issuance of new SBIC licenses through September.