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Uncle Sam backed 8 percent more loans for Western New York small businesses in the federal budget year that ended Tuesday, despite a spring scare that money was drying up.

The U.S. Small Business Administration issued guarantees for $54.8 million in small business loans through Sept. 30, up from $50.6 million in fiscal 1996. The earlier fiscal year was hit by a federal government shutdown and a hike in fees on borrowers.

While loan dollars increased in fiscal 1997, slightly fewer loans came to the area from the SBA's flagship 7a program.

Local borrowers took out 384 loans in fiscal 1997 under the 7a program, nine fewer than the year before. The size of the average loan grew to $142,762, from $128,727.

An April announcement that the program was running out of funds skewed borrowing activity, rushing a few large loan applications in while detering others.

"People almost got panicky -- a lot of stuff dried up," said Robert C. Novak, deputy district director for the SBA in Buffalo. The district covers eight Western New York counties.

The 7a program helps small businesses get financing by guaranteeing repayment of up to 80 percent of a bank loan. Borrowers file special SBA paperwork and pay a guarantee fee that varies with the loan's size.

In April, the SBA announced that it would cap 7a loans at $500,000 because of a budget shortfall.

"That had a dampering effect," Novak said. "For a couple of weeks there, everything kind of stopped."

But in June the embarrassed agency lifted the cap, after discovering that the apparent shortfall was the result of a $2.5 billion accounting error.

The area's SBA lending growth indicates that small firms have enough faith in the regional economy to take on debt for new ventures. Economists say small companies are an important source of job growth, especially in an area like Western New York that hosts few big companies.

"You see more interest in people going into business for themselves," said Alfred F. Luhr III, senior vice president for business and professional banking at M&T Bank.Inspired by the booming stock market -- or pushed by the loss of a job -- entrepreneurs continue to join the ranks of the self-employed.

"I think this is a big growth segment of the market," Luhr said, citing increasing loan demand from women business owners and the "SOHO" market, for small-office/home-office.

M&T topped the list of area SBA lenders for the third year in a row, generating 106 loans for $14.6 million. The other largest lenders were Marine Midland, with 74 loans for $12.7 million; Key Bank, 82 loans for $9.1 million; and Fleet Bank, 24 loans for $2.8 million.

Fleet's volume fell from the previous year, when it made 42 loans for $12.1 million. A change in how the loans are counted may have caused some of the drop, but there is also a declining demand from Fleet's customers, said David M. Sisson, Fleet vice president for community banking.

"Our customers are saying, 'I'll go SBA if it's necessary, but if I can go without it, I can save a lot of money,' " Sisson said. Fleet's small business portfolio, counting non-SBA loans, is growing, he said.

Borrowers are still adjusting to loan guarantee fees that rose last year in a money-saving move, bankers said. The fee on a $250,000 guarantee, for example, rose to 3 percent from 2 percent. The 7a program peaked in fiscal 1995 -- before the fees took effect -- with 499 loans totaling $63 million for the region.

Fees on a smaller loan program for construction and equipment financing rose this past year, choking off a growth trend. The 504 program generated 12 loans for $7 million, down from 26 loans worth $23.6 million in fiscal 1996. The Empire State Certified Development Corp. is the region's lender under 504, which typically provides long-term financing for 40 percent of project cost, augmenting the borrower's capital and other loans.

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