PRESIDENT BARACK OBAMA’S new plan aimed at bolstering small-business credit is drawing mixed reviews from business owners and advocates.

The plan, which was announced Wednesday, is designed to raise current Small Business Administration loan limits and give small banks — and by extension, small businesses — access to cheaper capital.

“When [community banks] are hit by recession and financial crisis, creditworthy small businesses lose out,” Obama said in a speech delivered from Metropolitan Archives, a small records storage business in Landover, Md. “That’s why we must do more to give these smaller banks new opportunities to access capital -– so that they can lend to small businesses in their communities.”

The White House will call on Congress to increase the caps on SBA’s 7(a) and 504 programs from $2 million to $5 million for standard borrowers. (For manufacturers, the cap would move from $4 million to $5.5 million.) The administration will also ask Congress to raise the cap on microloans from $35,000 to $50,000. The plan is designed to aid businesses that have greater capital requirements and those looking to expand, according to a senior White House administration official.

The Obama administration is also asking the Treasury Department to make it easier for community banks with less than $1 billion in assets to access funds from the Troubled Asset Relief Program, or TARP. Those banks would be required to hand over a reduced 3% dividend to the government – less than the standard 5% large companies must still pay. (Banks will be eligible to receive capital totaling up to 2% of their risk-weighted assets. The dividend they’ll have to pay will increase to 9% after five years to encourage timely repayment, according to the White House.)

To stimulate lending in rural and urban communities, the plan would offer Community Development Financial Institutions access to TARP funds at a 2% rate for up to eight years.

The reaction to the plan was mixed. Although the president’s plan is designed to help the small-business community, it faces real pushback from business owners who have been frustrated by what they see as the government’s failure to provide swift aid to small businesses during the downturn. Some business owners and advocates call these new initiatives a step in the right direction, but others say the White House has missed the mark again.

“I'm reminded of Ronald Reagan's quote: ‘The nine most terrifying words in the English language are: I'm from the government and I'm here to help,’” says Steven Elliott, a co-owner of Oren Elliott Products, a machine-parts manufacturer in Edgerton, Ohio, who says the president’s latest moves will have little, if any, effect on small businesses. He and a number of other business owners say the real issue is weak sales, not access to credit. “From my narrow perspective, the whole ‘tight credit problem’ appears to be a red herring,” Elliott says. “Banks are willing to loan, but in this depressed economy, few small businesses need loans.”

Others say more lending could ultimately hurt smaller firms. “Access to credit — even ‘cheap’ credit — will only deepen a lot of existing debt burdens for small and medium businesses," says Sean C. O’Rourke, a principal at Syzygy 3, a technology consultancy in New York. “The real culprit is the lack of business being conducted with small businesses,” he says.

Some small-business owners say the community would benefit from banks with more to give – provided they end up lending. Fresia Rodriguez, the owner of Kingley&Posh a plus-size clothing designer in Alexandria, Va., is optimistic about the new initiatives, but only if the government can require banks to devote new government funds to lending to needy small businesses, rather than padding their balance sheets. “It’s about time that things trickle down to small businesses,” she says. “I’m just hoping that banks do more to pass loans out to creditworthy small businesses.”

Others say to reserve judgment on the program. It will take weeks for Congress to agree on whether to pass the SBA provisions, and for the TARP changes to work through the Treasury Department, but many businesses could be helped by these new initiatives, says Ridgely C. Evers, a managing partner at Establishment Capital Partners, a management fund in Northern California. “The two things small businesses need most are: capital and guidance,” he says. “I don’t think the government is done by a long shot, but this will certainly help.”

—Write to Diana Ransom at dransom@smartmoney.com

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