The Virginia city of Lynchburg, stunned by more than 1,000 layoffs during the past year, is seeking to solve its problems through foreign aid: a $15 millon low-interest loan from Japan to modernize its industries and create new jobs.

The city, a highly diversified industry town that has suffered badly during the current recession, is only one of scores of localities and businesses around the country that are lining up for money under a low-cost loan program sponsored by Japanese businessmen as a goodwill gesture. Competing with Lynchburg for a piece of the pie are hundreds of other multimillion-dollar proposals, including plans for an international trade center at Dulles International Airport, a Metro line from Washington to Dulles, and a Virginia facility to convert coal to methanol.

Under the Japanese program, known as "Partners in Progress," up to $15 billion will be loaned to American businesses and localities by the Japanese businesses for the purpose of plant modernization, expansion, or the construction of new facilities. The money is expected to be made available at a cost of between 6 and 8 percent, the interest rate charged commercial borrowers in Japan.

That formula seemed tailor-made for Lynchburg, said Mayor Elliot Shearer, who learned about the program through the grapevine just days before last Friday's applications deadline. "We're very much in favor of promoting business in our community," Shearer said. "If we see a way for them to get money, it doesn't make any difference where it's coming from as long as it's legal and appropriate."

Lynchburg officials are hoping that their proposal, which would set up an industrial loan pool for capital expansion at 8 percent interest for up to 20 years, could create up to 1,000 jobs in the city. Financial reversals in the nation's auto industry, as well as the sluggish economy, have cost the Lynchburg area between 1,000 and 1,500 jobs over the past year at companiessuch as the Lynchburg Foundry and Thomasville Furniture. "Something like this could certainly help," said Richard Jacques, director of the city's Department of Community Planning and Development.

There is no assurance, however, that the Japanese funding pool will trickle down to Lynchburg. There are eight other requests totaling $2.6 billion from Virginia alone, and other states are submitting proposals at an equally rapid clip. "If someone gets up and says they've got $10 billion to give away, it attracts some attention," said James McKean, an economist at Virginia's Division of Industrial Development. "It's not something that happens every day."

Officials at the U.S.-Asia Institute in Washington, a nonprofit organization that is administering the loan requests, say that they believe they have received at least 1,000 proposals for low-interest loans totaling more than $100 billion. They declined to reveal which other area localities or businesses had applied for the assistance, saying the applications were submitted in confidence, but said they expect to find a few each from Maryland and the District.

Announcing the program last February, Japanese business leaders billed it as a "recovery fund" that would soften criticism of Japan's current $18 billion trade surplus with the United States. "The purpose is to create American jobs and relieve tensions between the U.S. and Japan," said Mary Sue Bissell, administrative director of the U.S.-Asia Institute. "It's a goodwill gesture."