The 2009 American Recovery and Reinvestment Act contains measures to aid small businesses, which employ about half the nation’s private-sector workforce, according to the Small Business Administration.

However, some business advocates question whether the aid is enough to make a substantial difference in entrepreneurs’ fortunes.

“There is something in the stimulus bill for small business, but it’s targeted and temporary,” says Karen Kerrigan, president of the Small Business and Entrepreneurship Council. “That doesn’t help the broad swath of business which needs to be helped to get the economy going again.”

Tax breaks and provisions to spark bank loans guaranteed by the SBA make up most of the stimulus package’s small business assistance.

Some increased government spending — such as the billions of dollars devoted to infrastructure improvement — also is likely to help small businesses, according to Molly Brogan, vice president of public affairs for the National Small Business Association.

“At some point, some of that will flow to small businesses,” Brogan says. “Someone will need to do construction on things like bridges, and we hope that will be small businesses. There will be a trickledown effect, though it may take a while.”

Small business tax breaks

The stimulus legislation offers a slew of tax breaks for small businesses during 2009.

For example, it extends a provision allowing businesses to expense up to $250,000 of new capital equipment immediately rather than over time through depreciation. The $250,000 amount originally was established for 2008, nearly doubling the amount from 2007. The new amount now applies to all of 2009 as well.

The expensing provision will help some small businesses trim 2009 taxes, but the effect will be limited, says Bill Rys, tax counsel for the National Federation of Independent Business.

“Capital expenditures are slowing down now because with the economy so slow, there is no reason to expand,” he says. “And most businesses don’t have the cash to spend on it anyway.”

The package also extends, through the end of 2009, a 50 percent bonus depreciation on some capital expenses that had been slated to expire after last year.

Businesses with annual revenue, based on a three-year average, of up to $15 million can now take their 2008 losses and carry them back over a period of five years. This allows businesses to reduce their tax burden in those earlier years. Previously, businesses could carry back their losses only two years.

Of course, the loss carry-back stipulation will help only businesses that have been profitable in the past.

“It’s going to be more medium-size businesses than mom-and-pop businesses,” Rys says. “If ‘mom and pops’ are having a loss, they’re probably closing their doors.”

Tax breaks for small business
The 2009 stimulus package offers several tax breaks for small businesses, including:
  • Extends a provision allowing businesses to expense up to $250,000 of new capital equipment immediately.
  • Extends through the end of 2009 a 50 percent bonus depreciation on some capital expenses.
  • Allows some businesses to take their 2008 losses and carry them back over a period of five years.
  • Reduces estimated tax bills for small business owners.

Small business owners, defined as people who receive at least 50 percent of their income from a business with fewer than 500 workers, also will see a reduction in their estimated tax bills, thanks to stimulus legislation.

In the past, these businesses had to give Uncle Sam up to 110 percent of their previous year’s tax liability through quarterly payments. Now, they only have to pay 90 percent of their 2008 tax bill when making estimated tax payments during 2009.

The reduction in estimated taxes will do some good, Rys says.

“It lets small business owners hold on to more cash now,” he says. “That certainly addresses the cash flow problems we see a lot of businesses having.”

A change in the alternative minimum tax wasn’t specifically directed at small businesses — but it certainly will help them. The law raises the 2009 exemption from the AMT to $46,700 for single people this year and to $70,950 for married couples.

Many of those paying the AMT are small business owners. However, some AMT tax relief is scheduled to expire after this year.

“We would like to see the change made permanent,” Brogan says.

Nearly all of the new tax benefits are slated to expire after this year, including all those cited in this story. The narrow focus and short-term duration of the tax changes dilute their effectiveness, Kerrigan says.

“These provisions are too little, too timid and too late for many small businesses,” she says.

To learn more about the tax breaks and how to take advantage of them, contact your accountant or lawyer, or check with the Internal Revenue Service. The IRS Web site has a section for small businesses and the self-employed.

SBA assistance

The stimulus package also provides $730 million to Small Business Association efforts to help entrepreneurs. About $375 million of this money is headed for the SBA loan guarantee program and to reduce borrower and lender fees owed to the SBA.

The SBA offers partial guarantees on loans made by private lenders to small businesses. Currently, the SBA guarantees 85 percent of loans up to $150,000 and 75 percent of loans bigger than that.

Thanks to the recession and financial crisis, SBA loan issuance has plunged, with the volume of new SBA loans totaling $2.76 billion from Oct. 1, 2008 through Feb. 20. That’s down a whopping 42 percent , from $4.77 billion, in the year-earlier period.

The government hopes to improve spur new lending by increasing the SBA’s loan guarantees to as much as 90 percent of a loan’s value.

The legislation also temporarily reduces or eliminates loan fees paid to the SBA by small business borrowers and banks. Borrowers currently pay fees to the SBA of 2 percent to 3.5 percent of the loan total, depending on the loan’s size, while banks make ongoing payments that total 0.55 percent of their loan balances. These breaks, of course, make it cheaper for banks to lend and for businesses to borrow.

Stimulus legislation also includes a $255 million program to provide loans of up to $35,000 for small businesses to make payments on loans they already have outstanding. The idea is to help businesses cut their debt burden. The new loans are interest-free, and repayment does not have to start until one year after the loan is issued.

Finally, $30 million has been allocated to expand the SBA’s microloan program, which provides loans up to $35,000 along with technical assistance to small businesses.

Brogan sees the SBA elements of the package as helpful. The loan guarantee increase significantly reduces risk for banks making the loans, she says. And the microloans can benefit workers who are starting their own businesses after losing their jobs.

But others are skeptical. In normal economic times, “the SBA loan provisions that cut or eliminate fees would definitely have more power,” Kerrigan says.

However, Kerrigan believes the fee provisions “will do very little to help lending conditions” because the weak nature of the economy has left banks afraid to make loans of any kind.

“The problem is that the economy is in horrible shape,” she says.

George Cloutier, chief executive of the small business consulting firm American Management Services, leveled even harsher criticism at the SBA stimulus.

“This bill allocates a modest $730 million in a $787 billion package to a loser loan program,” he says.

Cloutier doubts the new provisions will open the borrowing spigot for small business.

“Banks simply aren’t going to lend to high-risk accounts without a 100 percent guarantee, a mountain of paperwork and very tight credit criteria, which small businesses simply can’t meet,” Cloutier says.

Instead of its SBA package, the government should simply make its own loans to small businesses, rather than merely guaranteeing portions of loans that private lenders make to small businesses, he argues.

“The obvious need for direct loans to small business is just lost in the twilight, mainly because administration officials and Congress haven’t worked with small businesses,” he says.

“If you leave it to the private sector, it just won’t happen,” due to the fragile nature of both the economy and the banks themselves, he says.

For her part, Brogan says her association believes that banks receiving financial assistance from the government should be required to direct 25 percent of that money to small business lending.

“Banks are being given a lot of money, and we aren’t seeing a commensurate increase in lending,” Brogan says.

To learn about the SBA programs, contact the agency’s district office closest to you. Offices are listed on the SBA’s Web site. You can also call (800) 827-5722.

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