Just before Christmas, the Treasury Department released the terms for banks wishing to tap into the $30-billion Small Business Lending Fund created by Congress. Many would-be participants were less than enthused by what they found. One of the big sticking points was that Small Business Administration loans would not count as small-business lending for purposes of the fund. (Other gripes include volatile interest rates and requirements that would force institutions to find matching funds for any money they receive, according to trade publication American Banker.)

I've previously written about why banks love making SBA loans: obviously they come with government backing, but there is also an active secondary market for them, meaning they're easy to get off your books if you want to clear up space on your balance sheet or simply earn a quick profit. Of the small-business lending that is occurring right now, a disproportionate amount is SBA-backed.

The new lending fund kind of throws that in the faces of banks -- and I like that. It's an insistence that banks learn to make loans to small businesses on their own and not simply lean on the guidelines – and backing – provided by the government.

Still, banks are reluctant to do it. They've yet to devise consistent criteria that makes a small-business loan palatable in terms of risk and reward. Banks too often look at a small business like the person running it, depending on FICO scores and the like. To really open up lending to smaller Main Street businesses, they'll need to do better than that.

And I believe they can, especially if third-party vendors step in to make the investment in the technology necessary to do it. One company trying to fill the gap is On Deck, which Inc. first covered in May 2009.

On Deck has created its own measure of creditworthiness for businesses with annual revenue between $300,000 and $3,000,000. They dig into cash flow and other business credit data that is usually too time consuming for a bank to bother with for a $30,000 loan that has a life span of a year or less, which is the average size for On Deck.

Earlier this week, On Deck announced it has directly made over $100 million in loans to thousands of small businesses in the U.S. since it launched in 2006. That, of course, is a pretty small part of the needs of Main Street businesses. And On Deck doesn't have access to ultra-cheap funding like banks, instead relying on sources like institutional investors, meaning its scale is relatively limited and its loans are pretty expensive.

Still, it's a significant milestone because On Deck now believes it has sufficient data on the performance of its platform and loans to entice large banks to use it. (On Deck loans have special requirements and features you can read about in the May 2009 story.)

On Deck CEO Mitch Jacobs recently told me that the intention was always to be a company that provided the technology infrastructure for banks to make small-business loans and replace the reliance on credit agencies, not to be a lender. But first, On Deck had to put its money where its mouth is and show real results. 'Now we have enough data,' Jacobs says. 'The idea is to kill the cost of the traditional credit review process.'

That cost has been a major – if not the biggest -- hindrance in getting big banks to see Main Street businesses as a risk worth taking.

Private investment in the proper technology could be the key to solving that riddle.