New Possibilities Emerging for Small Business
by Rick Rodenbeck
Small Business Act means brighter future for companies seeking new financing.
Any small business owner will tell you that getting financing or having capital to do the things necessary to take their business to new levels is one of the biggest challenges they face. For them, the future is a little brighter now, thanks to the Small Business Jobs Act, signed into law by President Obama on Sept. 27, 2010.
The Act provides several key components, each having its own benefit to the small business owner. First, the alternative-size standard for SBA loans was increased to businesses with less than $15 million in net worth and $5 million in average net income. Through this law change, more small businesses are now eligible to get SBA loans. Now is the time for every small business out there, especially those who had ruled out the possibility of an SBA loan, to contact an SBA-approved financial institution to re-evaluate their position and determine whether they now qualify.
Small businesses and entrepreneurs will also benefit from the availability of more lending. The new law has significantly increased maximum loan sizes in top loan programs, and created $14 billion more in lending support. These changes are permanent under SBA’s 7(a) guaranteed loan program, fixed-asset loans through the 504 Certified Development Company program, Microloans, and International Trade, Export Working Capital and Export Express Loans.
Specific examples of the loan increases include an increase of 7(a) and 504 limits from $2 million to $5 million and a temporary increase in Express loan limits from $350,000 to $1 million for one year for businesses to get working lines of credit and other capital.
The Small Business Administration’s own information shows an increasing demand for larger loan amounts, so this change comes at a crucial time. The percentage of lending volume for guaranteed loans greater than $1.5 million has grown, from 13 percent of total dollars approved in fiscal year 2005 to 21 percent in fiscal year 2010, with many loans actually at the $2 million maximum. (See SBA Release No. 10-59 of Oct. 8, 2010.)
Another major element in the new law is the $12 billion in tax relief through the extension and expansion of several tax cuts. While the additional capital availability is a huge benefit, it’s equally important, if not more so, for small business owners to minimize their tax liability, thereby maximizing cash flow. The combination of higher loan amounts and maximum cash flow should provide a time of great opportunity for many small businesses. Some of the key credits and incentives include:
• An increase to $500,000 for the small business expensing limit, and an extension to include certain real property for the first time ever.
• A return of bonus depreciation for most property through 2010, and for certain longer-lived property and specific types of transportation property through 2011.
• Carry-back provisions on Eligible Small Business Credits of up to five years, instead of one.
• Zero capital-gains taxes for those who invest in small business corporations.
• Increased maximum deduction for start-ups to $10,000 and an increase in the phase-out threshold to $60,000.
While these provisions, among others, can provide significant benefit to small businesses, some have a relatively short fuse and may not be around for long. Whether or not these provisions will be extended further is unknown, but they are available now, so businesses should work with their tax adviser to determine which of these are applicable and will provide the largest benefit.
Congress has yet to address the Bush tax cuts, so proper tax planning is more important than ever. Given the uncertainty surrounding the 2011 tax landscape, it will likely become more difficult and complex than in recent years. Unless changes are enacted, some tax planning will necessitate action before year end. Actions that can be taken after year end, such as certain elections or an automatic accounting method change, will also be available.
Between the increased loan amounts and expanded tax credits, as well as the alternative size standards for SBA loans, more business owners than ever should be seeing brighter days ahead as they expand operations or make other investments in their business, provided they also do proper tax planning. Whether creating new jobs, refinancing, expanding into another location or purchasing additional machinery, there is nearly something for everyone in this Small Jobs Act. 
Rick Rodenbeck is the tax practice leader for CBIZ MHM in Leawood, Kan.
P | 913.234.1229
E | rrodenbeck@cbiz.com