Small Business Assistance in the American Recovery and Reinvestment Act
Prepared by Congressman John Adler’s Office
The small business provisions in the American Recovery and Reinvestment Act will provide immediate assistance to small businesses in need of financing and tax relief.
- The package contains over $30 billion dollars in tax relief to businesses. These tax breaks for businesses will allow them to hire more workers, purchase more equipment and smooth out losses that have occurred as a result of the economic recession.
- The legislation provides more than $13 billion for loans, lines of credit, and equity capital to small firms, resulting in the creation or retention of more than 400,000 jobs.
- In addition, there is an increase of $730 million for the Small Business Administration (SBA), and changes made to the agency’s lending and investment programs to reach more small businesses that need help.
- These important provisions will provide entrepreneurs with the financial assistance and tools they need to weather these challenging times and begin to turnaround our economy.
Tax Relief Provisions
Tax Credit for Hiring Seniors and Youth: The bill encourages job creation by providing businesses with a $2,400 tax credit for hiring a recently-discharged unemployed veteran or a youth that has been out of work. An individual would qualify as an unemployed veteran if they were discharged from active duty during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.
Tax Credit Bonds for Construction: The package creates tax credit bonds for the construction of schools, bridges, roads, and other infrastructure projects. Small businesses in these industries will see increased demand for their services.
Deduction for Capital Purchases: The bill will allow business owners to increase the amount of money they can deduct for new capital purchases in 2009. All business owners will be allowed to claim a first-year depreciation deduction equal to 50% of the cost of depreciable property.
Small Business Expensing Deduction for Capital Purchases: The bill will allow small businesses owners to receive a 100% tax deduction for capital purchases up to $250,000 for new and used equipment purchases.
Net Operating Loss for Small Businesses: The bill will increase the carryback period for net operating losses (NOL) from two years to five years. During this economic recession, if a company has a net operating loss, they will be able to receive a tax credit for taxes paid over the past five years in order to make up for current losses.
Delayed Recognition of Cancellation of Debt: Under current law, any debt forgiveness that a taxpayer/small business owner receives is considered income subject to federal income taxes. The bill allows companies that have debt cancellation income to defer taxes on that income for five years and then pay the tax in increments over the following five years.
Small Business Administration Provisions
7(a) Loan Guarantee Program
The Economic Recovery package includes $375 million for a temporary fee reduction for the Small Business Administration’s 7(a) loan guarantee program.
The bill directs the SBA to collect no fee or reduce fees to the maximum extent possible for the 7(a) loan program, which are the most basic and most used type loan of SBA’s business loan programs. The SBA’s 7(a) Loan Program has a maximum loan amount of $2 million dollars.
Website: http://www.sba.gov/services/financialassistance/sbaloantopics/7a/
Local Information: SBA New Jersey District Office
Two Gateway Center, 15th Floor
Newark, New Jersey 07102
(973)645-2434
Email: answerdesk@sba.gov
Phone: National: 1- 800-U-ASK-SBA Local: 973-645-2434504 Loan Program
The Economic Recovery package includes $375 million for the temporary fee reduction for the 504 loan program, which provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. The SBA is directed to collect no fee or reduce fees to the maximum extent possible for the 504 loan program. Generally, fees total approximately three percent of the debenture.
The maximum loan for small businesses is $2 million or $4 million for manufacturers. Loans must be used for fixed asset projects such as: purchasing land and improvements; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
Website: http://www.sba.gov/services/financialassistance/sbaloantopics/cdc504/index.html
Local Information: SBA New Jersey District Office
Two Gateway Center, 15th Floor
Newark, New Jersey 07102
(973)645-2434
Email: answerdesk@sba.gov
Phone: National: 1- 800-U-ASK-SBA Local: 973-645-2434Micro-Loan Program
The Economic Recovery package included $6 million for direct loans provided under the Small Business Administration’s Microloan program.
This program provides very small loans to start-up, newly established, or growing small businesses. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.
Website: http://www.sba.gov/services/financialassistance/sbaloantopics/microloans/index.html
Local Information: SBA New Jersey District Office
Two Gateway Center, 15th Floor
Newark, New Jersey 07102
(973)645-2434
Email: answerdesk@sba.gov
Phone: National: 1- 800-U-ASK-SBA Local: 973-645-2434Business Stabilization Program
The Economic Recovery Package included $225 million for loan subsidies and loan modifications for loans to small businesses that are experiencing immediate financial hardship.
This provision will provide loans on to viable small business concerns that have a qualifying small business loan and are experiencing immediate financial hardship. The loan is to be used to make periodic payment of principal and interest, either in full or in part, on an existing small business loan for no more than 6 months
Local Information: SBA New Jersey District Office
Two Gateway Center, 15th Floor
Newark, New Jersey 07102
(973)645-2434
Email: answerdesk@sba.gov
Phone: National: 1- 800-U-ASK-SBA Local: 973-645-2434Restoring Credit to Small Businesses
Guaranteeing SBA Loans
- Given the recent decline in the lending capacity of banks, the Economic Recovery package permits the Small Business Administration (SBA) to guarantee up to 95 percent of a small business loan, making the banks’ limited capital more accessible to small businesses.
Unfreezing Credit Markets
- In order to spur new economic activity, the SBA is given the ability to assist small business lending markets. This is accomplished by allowing the agency to provide liquidity and credit enhancements directly into the small business lending markets, which will allow them to encourage the flow of capital.
- o This will enable lenders to replenish their funds and make more loans to small firms. As a result, banks will be better able to lend, and entrepreneurs will be better able to secure financing on reasonable terms.
Making Loan Payments More Manageable for Business Owners
- The Economic Recovery package will allow the SBA to refinance existing non-SBA and SBA loans, borrowers will be able to secure more manageable repayment terms.
- o As a result, businesses will be better prepared to weather the economic downturn and be able to retain their employees. Doing so will also free up capital for lenders to make more loans to local businesses in need of financing.
Ensuring that Entrepreneurs are not Locked Out of the Capital Markets
- For borrowers unable to secure traditional financing, SBA will be able to collect applications and credit information on borrowers seeking loans. SBA will make this information available to SBA lenders and assist in approving the loan.
- If lenders do not choose to participate, the SBA can then provide the financing, providing small businesses with the funds they need for their operations and payroll. This is essential for small businesses that are unable to secure private sector financing, as they will begin to establish a loan repayment history that will increase the likelihood that traditional lenders will provide them financing. After the loan begins repayment, the SBA will then offer to sell such loans to SBA lenders.
