Is Small Business Act at Odds with Reality?


med_Pamelas_Mug_copy62Last month President Obama proposed to spur job growth in small businesses through an extension of a tax credit used when you spend money on research and innovation. Right, but don’t you need to have the money first?

This comment from the National Association of Self-employed kinda sums up the government attitude toward small business: policy often favors the larger businesses, regarding the self-employed merely as people working on their hobbies at home in their pajamas and bunny slippers. But in reality, the self-employed represent 78 percent of small businesses and contribute $1 trillion to the economy.
As business owners we might find some hope in the recently approved Small Business Jobs and Credit Act of 2010, a bill that should provide needed funding, tax breaks and increased outreach to businesses.

The bill creates a Small Business Lending Fund aimed to address the financial crisis on small businesses by allowing the Treasury Department to make capital investments in eligible financial institutions to increase credit available for small businesses. Independent community banks may participate in a new $30 billion lending fund on the condition they make loans to small businesses and meet other requirements. Financial institutions (bank and savings and loan holding companies, depository institutions, and community development loan funds) with $10 billion or less in total assets may apply for capital investments of up to 3 percent of risk-weighted assets.

We’ve seen other funding opportunities created by Congress in the past such as the ARC loan that was supposed to assist small businesses during the recession. Unfortunately the bungling bureaucracy is a constant stumbling block to businesses receiving these loans.

The new legislation directs the SBA to create an online lending platform that lists all lenders that make SBA-guaranteed loans and provides interest rates for each lender. However, the Small Business Administration that is slated to oversee these loans is run by bureaucrats who tack on new rules and restrictions…it’s like employees at the SBA have been instructed to make sure that the least amount of money is loaned to businesses and make the process as tedious as possible.

The Small Business Jobs and Credit Act of 2010 is a complex piece of legislation that will be difficult to monitor as well as verify its effectiveness.

The bill has a myriad of components from creating an intermediary lending pilot program of $20 million allowing some private, nonprofit entities to make loans to small businesses to the $7.5 billion in low-interest refinancing available under the SBA’s Local Development Business Loan Program.

The bill increases the Microloan Program maximum loan amount to $50,000 from $35,000. It increases the limit on the government’s participation in so-called Section 7(a) small business loans to 90 from 75 percent or 85 percent for all Section 7(a) loans regardless of loan amount. It raises loan maximums for plant acquisition, construction, conversion and expansion.

It establishes a Small Businesses Teaming Pilot Program, which will promote federal contracting opportunities for joint ventures and small businesses. It creates federal grants for small business development centers to provide technical assistance to small businesses seeking capital and credit and other opportunities. It also mandates regulatory relief for small businesses.

It creates a seven-year small business credit initiative established to allocate federal funds (up to $1.5 billion) to participating states.

Accountants must be scrambling to review all the added tax elements: excludes from taxes certain capital gains on sales of small-business stock and accelerate business tax write-offs for purchases of new equipment and other expenses.  Increases the maximum amount a taxpayer may expense under IRC 179 to $500,000 and increases the phaseout threshold amount to $2 million for tax years beginning in 2010 and 2011. Amends IRC 1202 to increase the exclusion from gross income of gain from the sale or exchange of qualified small business stock from 50 to 100 percent and the minimum tax preference does not apply. The carryback period for eligible small business credits under IRC 38 is extended from one to five years. The bill allows taxpayers to use eligible small business credits to offset both regular and alternative minimum tax liability. Both provisions are effective for credits determined in tax years beginning after 2009.

Talk to your CPA and financial institutions about what aspects of this legislation could benefit your business.   Congress passed the Small Business Jobs and Credit Act to give small business the tools and support we need to recover.  However, if it is not implemented properly it will go by the wayside, just as previous loan programs have (never getting to the intended benefactor).


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