As the Feds look for ways to increase the spending and development of the economy, small business is always right in the mix of the discussion. This is for good reason as the Small Business Administration (SBA) states that small businesses, those who employ 500 people or less, make up 64 percent of the net new jobs over the last 15 years.
The Senate passed legislation on Thursday to open credit to small businesses designed to hire new employees. According to Forbes, the measure would establish a $30 billion government fund to help open up lending for credit-starved small businesses, cut their taxes and boost Small Business Administration loan programs.
The measure passed as Democrats won a 61-38 vote to pass the legislation as they were joined by two Republicans. This gives the Democrats a small victory seven weeks out of the election.
“At a time when small business owners are still struggling to make payroll and they’re still holding off hiring we put together a plan that would give them some tax relief and make it easier for them to take out loans,” President Obama was quoted in a CBS News article.
A key piece of the bill's tax incentives involves breaks related to the purchase and depreciation of qualified equipment and machinery. In 2008 and last year, businesses were allowed to immediately write off 50% of the cost of new equipment. The new bill extends that bonus depreciation through this year -- it was initially to expire at the end of last year -- and is retroactive to Jan. 1. Companies are also allowed to write off up to $500,000 in capital expenditures in tax years 2010 and 2011.
The bill eases tax requirements for cell phones and allows their issuance to employees, if predominantly for business purposes, to be excluded from gross income. The legislation also includes additional write-offs for research and development and tax cuts specifically for restaurant owners and retailers opening branches or remodeling existing businesses.
Is this enough to stimulate the economy? Business owners must apply for a SBA loan at a bank that is going to credit qualify the borrower. The SBA will guarantee a percentage of the loan to the lender however most lenders typically do not extend their credit risks just because a loan is backed by the SBA. If a bank is going to take a risk on an individual or business then they will typically do it regardless if the SBA is backing the loan. Having the SBA back a loan will be a positive point during the application process, but not the golden stamp on a prospective deal.
Typically, the bank will give the loan to the borrower if they fit the Five C’s of Credit: Character, Capacity (cash flow to pay the loan), Capital (positive net worth), Collateral, and Conditions (of the borrower and their individual situation).
If you are looking for a loan, your best bet is with a small community bank or a local credit union. Remember to have your books in order and have an idea of what the future is for your business. Contact your local Liberty Tax office to get help preparing your business tax returns!
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.