Jan. 24, 2005--Despite rising interest rates and higher fees, small business owners tapped a record number of Small Business Administration-backed loans in the first quarter of fiscal year 2005.

In the quarter, which began October 1, 2004 and ended December 31, 2004, the Small Business Administration (SBA) and its partner banks approved 23,197 loans worth $3.56 billion, a 23% increase in volume and a 14% increase in value over the same period a year ago.

The average loan amount, however, was slightly lower than it was in the first quarter of 2004, $153,000 versus $166,000. In 2004 loans topped $15 billion for the first time.

"The heavy demand for SBA backing for guaranteed loans is gratifying," said SBA Administrator Hector V. Barreto in a press release. He added, "This tells me that American entrepreneurs are moving with confidence to start new business, build their companies, create jobs and grow the American economy."

The demand for loans remained healthy even though Congress cut $79 million from the agency's loan program in October. To meet the shortfall, lending fees have been raised, sometimes as much as 1%, said Paul Merski, chief economist for the Independent Community Bankers of America.

Higher fees, however, are offset by many pro-business policy shepherded by the Bush Administration, said Merski.

Lowering the income tax to 35% from 39.6% is one such policy improving the prosperity of small businesses, especially for small proprietorships, partnerships and sub S corporations. Depreciation reform is another, particularly the rule allowing businesses to immediately expense up to $100,000 of equipment, as opposed to before when deprecation was realized over the equipment's useful life.

The Federal Reserve has helped, too, said Merski, referring to the 2.25% lending rate that has kept inflation at bay. Though the Fed has made no secret about continuing to raise rates -- a move that would slow the business cycle -- rates are still historically low. Even if they rise another 55% to 3.5%, they are still historically attractive, said Merski.