The U.S. Congress finally approved the bill H.R. 5297, aimed at boosting lending to small businesses. The bill looks like an attempt to save the U.S. economy. The measure provides tax cuts, loans and revived stimulus provisions easing the availability of credit to SMEs to help them expand and increase hiring.
The bill would create a $30 billion federal fund to help smaller banks issue loans to small businesses and for cutting taxes by $12 billion over the coming decade.
While the Republicans look at it as a miniature version of the financial bailout package of 2008, Democrats believe that small business growth means job creation. High U.S. unemployment rates certainly explain the belief.
The Community bankers look enthusiastic about the measure, but the GOP-leaning small-business groups remain focused on expiring tax-cuts. Bill Rays, tax counsel for the National Federation of Independent Business feels that the impact of move is going to be minimal.
Republicans think that banks have plenty of money to lend, but the demand for loans is not really high.
Jade West, a lobbyist for the GOP-leaning National Association of Wholesaler-Distributors, has reasons to believe that the bill will not do any good as business doesn’t need credit — business needs customers. According to him the problem is lack of demand, in the absence of which borrowing does not make sense.
What does the bill have for Small enterprises?
The measure will help small businesses undertake fresh expansion or go green with delayed plans.
The legislation will help lowering Small Business Administration loan program fees, raising loan guarantee and lending limits which looks like a large inducement for SMEs to demand more loans. Loan caps under the Small Business Administration’s chief lending program would be significantly raised. Bankers believe that the extension of the 90 percent guarantees would make lending SBA-backed loans look for attractive as it would reduce the associated risks.
The bill includes tax breaks for restaurant owners and retailers who plan remodeling or building new stores. Also, long-term investors in some small business startups would be exempted from paying capital gains taxes.
Also, small business owners will be allowed to deduct the costs of health insurance for themselves and their families from self-employment taxes, but only for the 2010 tax year. Businesses that pay the alternative minimum tax will be eligible to claim the research and development tax credit and other write-offs such as a credit for hiring the disadvantaged.
But if you look closely, much of the tax relief would actually go to larger businesses through write-offs of facilities and equipment such as computers, trucks and machinery.
Sluggish demand conditions coupled with uncertainties surrounding Federal tax rates for this year make small businesses feel reluctant to go out and borrow for expansion or fresh purchase. Add to it, changes in tax reporting requirements and penalties can all together reduce the magnitude of the impact of the bill.
Let us wait and watch.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to