US Government backs small businesses
Democrats managed to pass the Small Business Jobs and Credit Act (H.R. 5297), by a 61-38 vote, saving part of their vote bank. The bill provides tax breaks and easy availability of credit to SMEs through $30billion lending program and tax breaks worth $12 billion, including more generous write-offs for equipment purchases.
It seems that US government is working hard to create jobs, trying to pull the struggling US economy out of recession.
Key provisions in the Act include:
Lending
- Lending fund worth $30 billion – Lending fund to be created for small-business to encourage lending to small-business by banks with under $10 billion in assets. Also, banks lending out more to small-business will be required to pay lower dividend on their borrowings than others.
- SBA general business 7(a) loans – extend through 2010 the 90 percent guarantee level and waived borrower fees. This legislation also, raises permanently, the maximum loan size to $5 million up by $3 million.
- SBA 7(a) Express loans –maximum loan size raised to $1 million from $350,000, temporarily – for one year from the date of its enactment.
Taxes
- Capital gains exclusion – capital gains exclusion for stock issued by some small businesses increased to 100 percent, temporarily, from the time of enactment of the bill through the end of the year. The limit on the gain is 10 times the original investment or $10 million, whichever is greater, and is not subject to the alternative minimum tax.
- Bonus depreciation – 50 percent first-year depreciation for some kinds of property restored through 2010.
- Start-up deduction – Increased deduction for start-up expenditures, for 2010, to $10,000, from $5,000. At the same time, higher cap on expenditures triggering a phase-out of the deduction by $10,000, to $60,000, from $50,000.
The bill certainly looks like a welcome move for businesses with strong fundamentals, suffering lack of liquidity and dearth of capital. It is going to make investment in SME stocks more lucrative through capital gains exclusion. One needs to watch out here as the tax break lasts only for a year from the date of enactment.
The bill is expected to create about half a million jobs and help fight the unemployment problem prevailing in the country which is currently facing an unemployment rate of 9.6%, up by 0.1% from July 2010. It might have a further crippling effect on the economy in case the banks start lending to borrowers with low credit worthiness. Bail-out in disguise, if we may call it, can put US economy in danger once again, if not handled carefully.
The opportunities created by the bill in equity capital market, raising loan capital and investing in new business last for limited time. So, if you plan to set-up a new business or raise capital, make the most of the opportunity.
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- Small Business Lending Increases in New York and Other US States
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