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Small Business Jobs & Credit Act: What’s in it for Small Business?

Guest post by: Kenneth C. Halkin

Article Overview: On September 27th, President Obama signed into law, the much awaited Small Business Jobs & Credit Act. I’ve been surprised by how little most small business owners seem to know about the provisions of this law and what is in it for them. The most highly publicized feature of the bill is the $30 Billion dollar small business loan fund. For many or most small businesses, this may be the least relevant feature of the law. Other features of the law include tax breaks for small to medium sized businesses, tax incentives for equity investors in small businesses and some significant changes in SBA lending programs.

Small Business Jobs & Credit Act: What’s in it for Small Business?

On September 27^th, President Obama signed into law, the much awaited Small Business Jobs & Credit Act. I’ve been surprised by how little most small business owners seem to know about the provisions of this law and what is in it for them. The most highly publicized feature of the bill is the $30 Billion dollar small business loan fund. For many or most small businesses, this may be the least relevant feature of the law. Other features of the law include tax breaks for small to medium sized businesses, tax incentives for equity investors in small businesses and some significant changes in SBA lending programs.

The $30 Billion loan fund is separate and apart from the changes to the SBA program changes. This fund is intended to provide local community banks with capital to provide low interest loans to small businesses. This would include approximately 8,000 community banks, across the country, with assets up to $10 Billion.

It is not clear yet how this program will work and whether all $30 Billion will make it’s way to the small business owner. We can assume, until we hear otherwise, that the making of individual loans will follow a similar process and criteria as current business loans made by the participating banks. We can also assume that theses banks will be subject to the same level of scrutiny and accountability, both internally and externally, for their lending decisions under this program, as would be the case for their other business loans. What this means is that businesses with good credit history, a strong balance sheet & collateral and positive cash flow, will qualify, while those suffering the most from the recession and slow recovery, may not qualify.

What’s more, many local banks are leery about accepting these funds, since they have to be repaid in 5 years, regardless of whether the loans are collected by then. This means that they may be forced to raise capital from other sources to repay the government. For some, the only option may be to go public or otherwise be acquired by a larger institution. For those who have worked hard to avoid those options, this is a major deterrent.

Hence, my earlier comment that this may be the least relevant part of the bill for many small businesses. This is not to say that this fund will not play a role in stimulating the economy. There are many small businesses that are doing well, are poised for growth and with access to low cost capital, could expand and add jobs to the economy. I am working with a couple of such companies right now.

Here is a quick run-down of the other features of this new law which may have broader relevance to the majority of small and medium sized businesses and/or which should, potentially, have a positive impact on economic growth.:

1. SBA Loan Guarantees- The ARRA stimulus package had increased SBA loan guarantees from 75% to 90%. However this provision expired back in the spring. The new law reinstates the 90% loan guarantee. This allows SBA lenders to approve somewhat riskier loans.

2. SBA Loan Fees- Like the 90% loan guarantees, the ARRA provision to waive loan fees had also expired. The new law adds back the temporary waiver of fees, making these loans less expensive for borrowers.

3. Increases in SBA Loan Maximums-

· 7(A) and 504 loans have both been increased to $5 million maximum from $2 Million and $1.5 Million, respectively.

· Special low documentation/fast-track loans have been increased from $300 K to $1 Million.

· Micro-loan maximums have been increased from $35 K to $50 K

4. Tax Breaks for Small Business-

· Sole Proprietors can now (for the next year), take health insurance premiums as a deduction against their self-employment taxes.

· The allowable year 1 write-off for start-up expenses has been increased from $5,000 to $10,000, for the current year.

· The allowable Section 179 write-off for small business capital investments has been increased from $250 K to $500 K for 2010 and 2011 and the criteria has been expanded to include certain real estate improvements.

5. Tax Break for Investors in Small Business- Those who purchase stock in small businesses, which are established as C corporations, between now and January 1, 2011, will not pay any capital gains taxes on that investment, as long as they hold that stock for at least five (5) years. This is intended to make it easier for such businesses to raise equity capital for growth.

In all, the government estimates that these provisions will save small business owners and investors approximately $12 Billion in taxes and create as many as 500,000 new jobs. There are obviously many assumptions behind the calculation of these numbers, which some economists (and Politians) are questioning. Regardless, one or more of these provisions may apply to or create an opportunity for your small business. Take advantage while the opportunity is there, as none of this is permanent, at least as it now stands.

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Article Tags: Business, Business Advice, Small Business, Small Business Advice, Small Business Finance



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