A boost for little guys

President Obama’s $787 billion spending plan isn’t just going to massive public projects like roads and bridges. A tiny portion is percolating its way through the US Small Business Administration to help Mark Verrochi expand his Hopkinton-based business, Red Barn Coffee Roasters.

With a $250,000 loan backed by the federal agency and sweetened with stimulus funds, Verrochi will buy a much bigger coffee roaster, which he estimates will let him increase his operation tenfold.

“We will be aggressively pursuing business I know is out there,’’ said Verrochi, who also operates cafés in Southborough, Westborough, and Boston’s Faneuil Hall.

Red Barn Coffee Roasters is one of hundreds of small businesses in Massachusetts to benefit from the American Recovery and Reinvestment Act. As part of the stimulus package passed in February, the Small Business Administration, or SBA, received $730 million to provide loan guarantees and temporarily eliminate loan fees. The goal is to encourage banks to lend to small businesses, thereby boosting the economy with more jobs and more spending.

But will it work? That’s the $787 billion question fueling political and economic debates from Southborough to Spokane, Wash.

Jeffrey Miron, a senior lecturer in Harvard University’s economics department and a self-described libertarian, is skeptical of the stimulus plan in particular and the SBA in general. Small businesses come and go faster than large companies, he said, and should be at the mercy of the market to decide whether they are viable.

Using Red Barn Coffee Roasters as an example, Miron said, he disagrees with the redistribution of wealth that he sees in its government assistance.

“Having other people’s tax dollars finance him to become a slightly bigger business is a misallocation of funds,’’ said Miron.

But at Red Barn’s café on Route 9 in Southborough on a recent afternoon, it didn’t take long to find evidence of the kind of ripple effect predicted by stimulus advocates.

Lorraine Estella, who works next door at Realty Executives and was waiting for a sandwich, said she’s feeling especially fond of the café lately, because a woman who had stopped to buy coffee saw her brochure and ended up buying a house from her. Likewise, she gives Red Barn business, meeting her clients there.

“It’s fabulous,’’ Estella said. “We’re helping each other.’’

The idea behind stimulating one small business is that the company will then buy more things wholesale and help other companies and their employees, said Ted Welte, president and chief executive officer of the MetroWest Chamber of Commerce, based in Framingham.

“It’s all about the multiplier,’’ he said. “If people are spending money on a new roaster, say, that starts flowing through the economy of whoever produced that, and then more people can be serviced out of the coffee shop, and that means more money coming in.’’

The SBA doesn’t give money directly to companies. Instead, it guarantees a certain percentage of a loan so that the lender is taking less risk, thus - theoretically at least - encouraging it to grant more loans. The SBA is using its share of the stimulus package to temporarily eliminate fees and, in some cases, increase the amount of loans it will guarantee.

After falling steeply as the recession took hold, the number of SBA-backed loans in Massachusetts began climbing again after the stimulus plan went into effect. For the federal fiscal year’s third quarter, which ended June 30, the SBA saw 378 loan approvals statewide, compared with 261 and 266 from the year’s first two quarters, respectively. But the post-stimulus number was still far short of the 574 approved during the third quarter of fiscal year 2007.

The reduction or elimination of loan fees provided by the stimulus plan garnered more than $805,000 in savings for 251 small-business borrowers in Massachusetts during the first two months after the legislation was signed.

Verrochi and his wife, Lisa, launched their business in 1997, when they started roasting coffee beans in a red barn in Hopkinton. They have since moved their roasting operation to Upton.

The couple wanted the business to grow but found their equipment was limiting how much coffee they could produce. Financing has been tougher to get during the recession, so Verrochi turned to a local bank, which gave him an SBA-backed loan to buy a 50-kilogram roaster, scheduled to be installed this month. He paid no borrowing fees, which he estimated saved him $3,000 to $4,000.

Verrochi declined to discuss annual sales, but said the new roaster could handle about the same amount of coffee in one hour that either of his other two roasters can produce in eight hours.

The federal government is providing banks with an incentive to grant loans, said David Bennett, vice president in charge of the business banking group at Middlesex Savings Bank, which gave Verrochi his loan.

The stimulus money that went to the SBA to increase loan guarantees is an important part of the solution, he said. “It may make the difference for us whether we’re going to do a loan or not,’’ Bennett said.

Sometimes an applicant’s collateral is weak or the business’s financial condition isn’t the best, he said, but there’s still “a compelling story to tell.’’ That’s usually when SBA support can make the bank feel more comfortable granting a loan.

“Small businesses help to grow and support the economy, since small business really is the backbone of the economy,’’ Bennett said.

If the stimulus plan’s goal is to restore confidence in the economy, Verrochi is the embodiment of that optimism. Right now he has about 50 employees and said if his business increases as he expects, he could add a dozen new jobs within a year.

More growth could come from other businesses supported by Verrochi’s expansion. For example, he helped the owners of Café Dolce, which just opened in Franklin, with their business plan in exchange for a handshake agreement that they would sell his coffee.

That’s exactly the sort of interconnectedness that stimulus plan advocates look for. But still, there are doubters.

Harold Petersen, associate professor of economics at Boston College, said the stimulus plan should have emphasized housing. And he said he would also have liked to see more done to boost business investment by offering an investment tax credit.

So what about Red Barn’s loan and the potential for that business to grow and help create new businesses?

“If it helps a bit, that’s a plus,’’ said Petersen, but then he wondered whether the economy needs more cafés right now when so many restaurants are struggling.

“We needed a stimulus,’’ he said. “I think it’s better than nothing - but barely.’’

Lisa Kocian can be reached at 508-820-4231 or lkocian@globe.com.