SEMA eNews Vol. 12, No. 11, March 19, 2009

Government Provides Credit Relief to Small-Business Community

The Obama Administration is taking a series of steps aimed at unfreezing the credit markets for small businesses. The move is intended to augment other small-business programs contained in the recently enacted economic stimulus bill.

Under the new plan, the Treasury Department will begin making direct purchases of securities backed by Small Business Administration (SBA) loans, thereby allowing community banks and other lending institutions to start lending again. The SBA normally guarantees around $20 billion in loans a year, but the current level has dropped to about $10 billion. The credit markets have been frozen since last fall as lenders have been scared away by a rapid rise in defaults.

The Treasury Department will guarantee up to 90% of SBA loans and spend up to $15 billion purchasing the loans. Previously, the government would guarantee up to 80% on SBA loans less than $150,000 and 75% for larger loans. SBA loan fees will also be waived. The Obama Administration will pay for the initiatives with funds from the $700 billion financial rescue program.

The nation’s 21 largest banks receiving aid under the financial stability plan will have to file monthly reports on the amount of small business loans they have extended. This is in addition to quarterly reports that all banks must currently file stating the total amount of loans they make to small businesses.

The lending program joins other small-business initiatives contained in the $787 billion economic stimulus bill intended to jump-start the nation’s economy. Below are highlights:

  • Extension of Bonus Depreciation: The law extends a bonus depreciation already in effect, permitting businesses to immediately write-off 50% of the cost of new equipment purchased in 2009.
  • Extension of Enhanced Small Business Expensing: The law extends a small-business expensing provision, allowing small businesses to write-off up to $250,000 of capital expenditures made during 2009 rather than recovering the costs over time through depreciation, and increases the phase-out threshold to $800,000.
  • 5-Year Carryback of Net Operating Losses for Small Businesses: Under previous law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding 20 taxable years after the year that the loss arises. For 2008, the new law extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less. For example, a business that currently is losing money may apply these losses to a previous profitable year and then claim a refund for taxes paid that year.

Applying for SBA Loans:
 
Borrowers can apply for loans directly with their lending institutions. Only lenders who have been approved to participate in SBA lending programs can assist you with an SBA-guaranteed loan, however. Contact your local SBA District Office to obtain a list of approved participants in your area. Follow this link to locate the District Office nearest you: www.sba.gov/localresources/index.html.
 
For answers to frequently asked questions about the new SBA loan initiative, click on this link: 
www.sba.gov/idc/groups/public/documents/sba_homepage/recovery_act_faqs.pdf.

If you have been turned down by your bank, you are still eligible to apply for a loan. Revisit your lender and specifically ask about the economic stimulus bill (the “Recovery Act”) and SBA loans. These government programs are intended to provide incentives to lenders to get more dollars in the hands of the small businesses that need it most.

The most frequently financed industries in 2008 were service, retail trade, accommodation/food service, construction firm and manufacturing.

For further details, contact Stuart Gosswein at stuartg@sema.org.

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