I previously wrote about the Small Business Lending Fund in this blog, but the fund drew as much interest as raw broccoli at a children’s birthday party.

Congress created the $30 billion fund to provide capital to banks and increase lending to small business, but as of Monday, a little more than 600 banks applied for only $8.6 billion, according to Treasury spokeswoman Colleen Murray.

Those numbers disguise the fact that about 2,000 banks are S corporations or mutual companies and haven’t had a chance to apply yet because the Treasury hasn’t given them a term sheet.

So as the Wall Street Journal reported last week, the fact that only 7 percent of all banks actually applied by the end of March deadline is not as pathetic as it looks.

The U.S. Treasury has extended the deadline for banks to apply from the end of March to May 16 and will issue term sheets within weeks for S corporations and mutuals, Murray said.

She said the Treasury expects applications for the program to start flowing in, and there’s a real need for capital on the part of small business.

Still, there’s a lot of hesitancy among banks. Those that have Troubled Asset Program Relief capital can refinance into the Small Business Lending Fund and potentially save money on dividends to the government, as long as they increase lending.

But for banks that didn’t have TARP money, there is less of an incentive to apply.

Banks that have CAMELS 4 or 5 ratings aren’t eligible, either.

Plus, “many banks concluded there wasn’t sufficient enough growth opportunities to warrant taking on that type of capital,’’ said Richard Maroney, co-head of investment banking for Austin Associates. Although the dividends banks must pay on the capital start low, they can rise as high as 9 percent for banks that don’t increase small business lending after four and a half years (although banks can repay the capital and avoid the higher dividend).

Plus, bankers are wary the federal government could change the rules on them. There is, indeed, a good amount of political pressure surrounding the program.

Congresswoman Sen. Olympia Snowe, R-Maine, for example, introduced a bill last month saying the program lacked “transparency and accountability.” The bill would make it impossible for the fund to give money to banks that had TARP money.

“I think there is still a taint from TARP,’’ Maroney said. “I had a number of clients who said they were hesitant to deal with the government.”