Stimulus - Small Businesses

Since the recession took root last year, many of small business loans have significantly dropped. Accordingly, President Barack Obama’s centerpiece of his economic stimulus plan is to rebuild small businesses because he believes that small businesses are the driving force of the US economy. The bill authorizes the Small Business Administration to temporarily reduce fees for participation in their loan-guarantee programs to insure that the banks do not charge the default when dealing with borrowers. There is also some money involved for businesses that need immediate relief. It gives them money to pay off their debt up to $35, 000 in relief. Interest is fully subsidized, and they won’t have any payments in their first year. Although this money will have to be payed back in a time period of 5 years.

According to the SBA, they have a limited amount of time to fund these measures. Congress allocated $630 million to fund loans, and authorized these procedures through 2010. Borrowers will have priority over lenders if the cash does run out, and small banks have priority over larger ones to receive discounts and waivers.

Other stimulus measures for small businesses include:

Unfreezing the loan market

This allows the SBA to guarantee up to $3 billion in debt, which makes it more attractive in investors to invest, and banks to expand their small business lending. They will charge for their guarantees to keep the program tax-free for taxpayers.

Loss accounting

Companies experiencing losses in revenue can reduce their tax bills prior to their loss and 20 years after the loss. Extends carryback provision to five years, which will cut the tax bill that most businesses will have to pay in April. Although it is only available to companies with receipts of $15 million or less.

Equipment expensing

The plan allows the expenditure limit for equipment to be higher. For example in 2005 businesses could write off up to $125,000 in spending on goods. In 2008, Congress increased that amount to $250,000. Not with this plan this amount is even higher. This deduction is aimed at small businesses who spend more than $800,000 on capital expenditures.

Hiring incentives

These incentives are conditional and may not apply to all employees in the work force. If you hire a unemployed military vet or high-school dropout, you could get a $2,400 per worker credit on your taxes. The Work Oppurtunity Tax Credit lets businesses claim a tax credit for 40% for the first $6000 in wages paid to the worker who falls into this target group.

Capital Gains

Investors will get a break on their capital-gains taxes, and if you buy stock in a small business and hold it for at least five years, and then sell it, it allows you to exclude 50% of your gains. The stimulus plan increases this to 75%.

Microloans

This program is mainly aimed at the nonprofit organizations. The SBA previously lended up to $20.2 million for these organizations, but the stimulus increases this amount by $6 million, plus $24 million for marketing and management for the microloan program.


Opinion:

Personally, I think that Barack Obama’s approach to the economy by promoting investors to invest into small businesses, as a crucial part to rebuild the economy, is an excellent idea, although there should be a few things changed. For example, to increase stability in the economic system, there should benefits depending on how long you owned the asset for the business. If you sell within 1 year, you should pay 60% of the gain, 5 years – 40%, 10 years – 30%, 20 years – 10%, 20 years – 5% and so on. This is an added incentive for many investors towards capital gain and would help the economy greatly. I think the idea of hiring incentives is great, although the target market for these incentives should be higher. It should not be limited to war veterans, and high-school dropouts, but should also be aimed towards immigrants who have come to the country looking for jobs.