April 15, 2005 -- With the economy expanding, banks increased lending to small businesses in the first half of fiscal year 2005, reported the Small Business Administration.

Between October 2004 and March 2005, the SBA, under its flagship 7(a) loan program, backed 46,603 loans totaling $6.98 billion, a 23% increase from the same period a year ago. The average size of the loans, however, decreased from $165,292 in the first half of 2003 to $149,775 today.

Along with 7(a) loans, which can be used for a variety of purposes from leasehold improvements to working capital, loans earmarked for fixed assets increased 16% to $2.04 billion from the same period a year ago.

"Bankers are more confident because the credit risk for small businesses is smaller now than three years ago when the economy was weak," said Charles Ou, senior economist in SBA's Office of Advocacy.

With interest rates climbing, banks prefer variable rate loans to fixed-rate. Because of this, said Ou, banks are heavily promoting commercial loans, which are typically variable rate loans, as opposed to fixed-rate residential mortgages, by making them less expensive. "Banks are trying to promote lending to business by narrowing the spread," he said. According to a Federal Reserve survey of 55 senior loan officers, 40% of respondents trimmed the spread on loans to small businesses in October, followed by 25% in January.

Ou, however, was cautious about how long this lending trend would last. "The last half of the year could be much different. We don't know the impact of higher oil prices or the growing trade deficit."

In other SBA news, Senator John Kerry sent a letter last week to the head of the SBA, Hector Barreto, asking for information about the SBA's spending on promotion of President Bush's Social Security agenda. The letter came after Senator Kerry, the leading Democrat on the Committee on Small Business and Entrepreneurship, learned that the SBA was "one of several federal agencies that has tapped its budget to fund the travel of high-level employees as part of President Bush's '60 stops in 60 days' to promote his Social Security proposals," read a statement released by the Senator's office.

Though she hadn't seen the letter, Jennifer Foley, a press secretary at the SBA, a presidentially-appointed agency, said Barreto's promotion was commonplace. "The (SBA) president is constantly traveling to promote the president's domestic agenda, and Social Security is number one on the president's agenda," she said.