As she listened to a range of witnesses dispute claims by the Federal Reserve System and the Small Business Administration that the "credit crunch" wasn't crushing small entrepreneurs, Mayor Carolyn Kirk said her mind drifted out to sea.

While she was waiting her turn to testify Wednesday afternoon before the U.S. Senate Committee on Small Business and Entrepreneurship chaired by Massachusetts Sen. John Kerry, Kirk said she was thinking of the recently ended battle to get $14.3 million in federal aid into the hands of hard-pressed fishermen of Massachusetts.

The same credit crunch that was the formal subject of the committee hearing had overwhelmed the entrepreneurial fishermen, who like men and women who work on dry land, had been driven to borrow equity from their homes to keep their businesses — fishing — going.

Kirk said she had received a phone call while on route to Washington for her date with the Senate committee that informed her that Kerry and Sen. Edward M. Kennedy, both D-Mass., had just won a great concession from the federal bureaucrats in charge of the New England groundfish fishery.

The National Oceanic and Atmospheric Administration had dropped its effort to convince the state of Massachusetts to limit direct payment to fishermen. The bureaucrats had wanted to use the money to buy fishermen out of their vessels and fishing permits as a means of reducing pressure on the rebounding stocks.

Kerry, Kennedy, Gov. Deval Patrick, the fishermen themselves and city officials had the idea of infusing capital into the surviving small businessmen still dedicated to fishing, to help them weather the shortage of fish and improve their assets.

Kirk had greeted Kerry with a "thank you" for managing the high pressure negotiatons on fishing.

That the nation's entire class of small cap-entrepreneurs shared many of the frustrations bedeviling the fishing boat owners wasn't lost on Kerry either.

In an e-mail message to the Times yesterday, Kerry said, "We've seen our state's struggling fishermen go without promised help for months while relief was tangled in red tape." He contrasted that impasse with the lightening-fast salvation of Wall Street. "We've seen Bear Sterns get bailed out while everyday people face foreclosure."

Over the course of 21/2 hours of the committee hearing Wednesday, worrisome testimony came in dry, flat form.

Frederic Mishkin, a member of the board of governors of the Federal Reserve System, told the panel that one view is that while the credit supply conditions for small businesses have held up "fairly well" recently, small business optimism is in freefall.

Another view came from a survey co-sponsored by Duke University that is less positive, holding that "credit market "turmoil" is possible.

Like the desperate mortgaging of their homes for liquidity to stay afloat and in business as fishermen, Mishkin described land-based business owners turning to their "real estate assets to secure their loans."

He told the panel the trend is "one of our most important concerns," and noted that in a recent poll, as much as 45 percent of the total dollar amount of small-business loans nationally were collatoralized with real estate, one-third of it "personal" real estate.

Robert Gillis, vice president of the Cape Ann Savings Bank, told the Times the dependence on real estate to secure small business loans was certainly higher than that in Gloucester.

"We do more than that," he said.

Gillis, who was not at the hearing but discussed it with the Times yesterday, agreed with Kerry's finding that the federal Small Business Administration loan programs need to be energized.

In his opening statement Wednesday, Kerry said SBA loans are expected to fill gaps in a slumping credit market "but that hasn't happened this time around. The "7(a) loan program," which is the largest government backed small business loan program for working capital, "appears to be in free fall," he said.

Kerry said committee research has concluded that 7(a) loans have decreased by about 18 percent in a year.

Gillis said he could not comment on the statistics but agreed with the general finding and noted that SBA loans "are more expensive" because of their purpose to guarantee up to 85 percent of the loans made by banks under the program.

Samuel Bornstein, a certified public accountant and a professor of accounting and taxation, told the committee the the major cause of "small business bankruptcy is "too much debt," a state encouraged in recent years by "exceptionally low" interest rates and nearly nonexistent "loan underwriting standards."

"As many as 80 percent of Americans refinanced their homes during that time," said Bornstein. "Included in this statistic are small business owners who cashed out the equity in their homes to capitalize their newly created or existing businesses."

The unusual condition prompted by easy access to cash where both lender and borrower were happy was what Bornstein called "a perfect storm."

Following Bornstein was Kirk, mayor of the city that gave the world that expression.><p>

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