buzgate.org Press Room
Economic Recovery Plan: The Good, the Bad and the Ugly for Small Business
Between job cuts, daily announcements of more Wall Street abuses, the ramifications of the failing auto industry and the credit crunch, it's no wonder road rage is up and people everywhere are pulling back on spending.
There is good news, however. Small business is getting a break with the new economic stimulus recovery, which is good for businesses of all sizes and industries!
If you counsel small businesses, if you sell to small businesses or if you are a small business, read on...
In the long run, all businesses stand to benefit from America's Recovery and Reinvestment Act of 2009 in the following ways;
- If your business is in EDUCATION or you offer products and services that would support 21st century improvements to classrooms, labs and libraries, than read up! $650 million in funding is targeted for school computers, science laboratories and technology training for teachers.
- Investments in COMMUNICATION call for $350 million in mapping the countries' current broadband infrastructure; $4.3 billion in grants to provide wireless and broadband infrastructure to communities, including public computer centers and sustainable adoption of broadband service; and $2.5 billion Broadband grants to rural communities. These incentives promise significant improvements for businesses located in rural areas in terms of their ability to advance connectivity speeds and compete more effectively on a global scale.
- Incentives to INNOVATE in areas of science, research and technology in all sectors of the economy will not only include opportunities for small ventures on the front end, but will likely create new markets in housing, security, education, healthcare and other sectors that spawn new types of businesses and new commerce opportunities over the long term.
- RURAL BUSINESSES are also targeted in several ways including $150 million in economic recovery programs aimed at urban industrial core and rural economic recovery programs and another $150 million in guaranteed loans for rural businesses. Both of these incentives offer support for regional economic clusters as a viable economic development strategy.
- Lastly, the stimulus package also speaks to improvements in both sources of ENERGY and energy efficiencies. This will lead to both cost savings and improved operational efficiencies for all businesses.
Many of these incentives are particularly suited to businesses that do government contracting. There are also advantages to being certified as a woman or minority disadvantaged business enterprise, or a disabled veteran business enterprise. There is a lot a paperwork involved in becoming a certified government contractor, but the benefits can make it well worth the effort!
In the short term and specifically for small business, the economic stimulus package promising some refreshing relief in the form of business funding and tax breaks. For example, the U.S. Small Business Administration (SBA) is slated for $730 million that will be used in a variety of ways to encourage SBA backed loans including:
- Reducing loan processing fees
- Increasing loan guaranty levels, and
- Improving secondary loan markets.
SBA Loan Program Incentives
- The SBA is temporarily reducing and, in some cases, eliminating fees associated with SBA loan applications and processing.
- The SBA is also increasing the percentage that it guarantees loans from 75 and 85%, up to 90% meaning that the risk to the lender goes down from 15 to 25% to only 10%.
- The SBA is making $3 billion worth of loans more attractive in secondary markets. What this means is that when a bank makes an SBA-backed loan to a small business, the bank then sells the loan in a secondary market. By passing loan guarantees through to secondary markets, SBA lending becomes more attractive for all parties involved.
SBA Loan Programs
What all of this means in terms of access to real funding for small business are three things:
- A new Small Business Stabilization Loan will be made available where a business can borrow up to $35,000 to make up to 6 months of payments on a prior loan at fully subsidized interest with no payments in the first year and a repayment deadline in five years.
- More Micro-Loan monies - $30 million total, will be available. These loans offer up to $35,000 and come with various forms of technical assistance to help the small business succeed and hence, pay back the monies. These loans are made through local nonprofit community organizations.
- Repositioning of 504 Certified Development Company (CDC) Program - If the project involves expansion of an existing small business concern, in certain situations any amount of existing indebtedness that does not exceed 50% of the project cost of the expansion may be refinanced and added to the expansion cost.
The caveat on all this however, is that time and money are limited. Between now and September of 2010, borrowers will be given priority over lenders, and small banks will be given priority over large banks. Connect with your local SBA office to learn more.
Lastly, but certainly not insignificant are tax incentives in areas of hiring, capital equipment and cancelled debt. For example,
- If your small business hires a military veteran or someone between the age of 16 and 25 that has been out of school or unemployed for the past six months, you can earn a tax credit of $2,400 per worker
- Capital Equipment Incentives include Expense Write-Offs and Accelerated Depreciation. For example:
- Small business capital expenditures, such as vehicles, machinery and computers that do not exceed $800,000 per year, can be expensed up to $250,000 versus $125,000 in '08 and '09, and
- New capital equipment purchases made and used in 2009 can be half expensed in the same year with the balance depreciated against standard fixed depreciation schedules
- Operating Losses can be carried back 5 years versus just 2 years, and
- Any Cancelled Debt in '09 and '10 can be tax deferred with no payments in the first 4 to 5 years, with the balance paid off in years 6 through 10. This means that if you negotiate paying off a $100K loan at $75K, the $25K difference that gets booked as income, does not incur a tax payment obligation until 6 years later.
Each of these accounting issues offer tax incentives where a business can show increased expenses to offset profits, which lowers tax obligations at the federal level, and in some cases, at the state level.
A nice final piece of great news is that incentives for investing in small businesses are also part of the recovery package. It used to be that an individual could exclude 50% of capital gains, under certain conditions, on profits from the sale of stock after owning for 5 years. Under the stimulus package, this exclusion is increased to 75% and so those of you who are family members, angel investors or venture capitalists with monies to invest would find it more advantageous to locate promising ventures to put your money into and reap the rewards!
While only 20% of the approved $787 billion stimulus package is projected to be spent in 2009, $157 billion is still a lot of money to go around. To make sure that your business takes full advantage of the opportunities ahead, know who your local public business assistance agencies are.
Now more than ever, it is important to work together, leverage scarce resources and work smarter and Buzgate.org offers the connections for making this possible.
# # #
BUZGate.org (the Business Utility Zone Gateway) is a public/private initiative that serves as a resource and referral network for the nation's millions of small businesses. BUZGate was created by William and Deborah Osgood, founders of the Knowledge Institute, and recognized leaders in small business development and education. BUZGate's resources are available to users at no cost. The site is fully supported by private sponsorships. Last year, more than 2 million users turned to BUZGate.org for advice and guidance. Visit www.BUZGate.org for more information.