WASHINGTON - Seven months after legislation creating a $30 billion fund was enacted to encourage community banks to lend to small businesses, no money has gone out, and only about 20 percent of eligible institutions have applied for funding, according to a top lawmaker.

"When can some of these banks receive the green light from you?" Senate Small Business Committee Chairwoman Mary Landrieu, a Louisiana Democrat, asked the Treasury Department at a hearing last week. "Several banks in Louisiana are excited about this opportunity."

At issue is a statute approved in September that seeks to allow banks with $1 billion or less in assets to borrow from the government up to 5 percent of their risk-weighted assets. Banks with between $1 billion and $10 billion could borrow 3 percent. These smaller financial firms would receive investments that must be used for small-business lending.

According to the Treasury Department, 702 community banks have applied for about $10.1 billion in funding.

The loans would come with a 5 percent dividend to Treasury, which could be reduced by 1 percent (to as low as 1 percent) for each 2.5 percent increase in small-business lending conducted by the bank.

Landrieu said she was encouraged by the number of banks that have applied, but noted that this represents only about 20 percent of 3,700 community banks that so far are eligible to participate. An additional 3,000 banks will have the opportunity to apply shortly.

Landrieu also expressed concern that the Treasury has not approved any banks to participate in the program yet.

In response, Treasury Deputy Assistant Secretary Don Graves said the agency was moving as quickly as it can to get the program going. In the next few weeks, he said, funds will start going out to community banks, and all applications that meet the eligibility criteria will be approved by a September deadline.

However, a large chunk of those 702 applying - 285 banks - are small institutions that already have received taxpayer funds from the Troubled Asset Relief Program, enacted to stem the financial crisis of 2008.

Maine's Sen. Olympia Snowe, the ranking Republican on the panel, expressed concern about how so far there has not been much interest in the program from non-TARP banks.

She argued that participating TARP banks applying would "essentially be paying off one taxpayer-funded credit card - TARP - with another, in the form of the lending fund."

Those TARP recipients that aren't late on their dividend payments are expected to be permitted to convert their TARP stakes over into the new program.

But Paul Merski, chief economist at the Independent Community Bankers of America, insists that most community banks are well-capitalized and do not need to borrow from the fund now, as lending is starting to return.

"This program has a carrot and stick for increasing small-business lending," Merski said. "This is not a program to bail out banks. It is a program that gives banks, which demonstrate they have an opportunity to lend, the capital to assist them in small-business lending."