Track the Stimulus

The stimulus provides several benefits to small businesses in the form of tax incentives, additional loan guarantees and lower fees for small business loans, and accelerated depreciation of capital expenses.  In addition, the small business stimulus includes having the opportunity to bid on the large number of projects funded by the "American Recovery and Reinvestment Act" and carried out by federal, state and local governments.

Here is a summary of the benefits for small businesses under the stimulus act:


Five-year carryback provision

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Small businesses, defined as businesses with revenue of less than $15 million per year will be able to carry back their 2008 and 2009 losses for 5 years (back to 2003/2004).  Businesses that see losses during the current downturn and were profitable in prior years may therefore receive a welcomed tax refund from the government.  Prior to this provision small businesses could only carry back losses 2 years.  The administration expects that small businesses will receive refunds of about $4.7billion in aggregate.

Small business loan guarantees

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Over the last few months credit to small businesses has dried up considerably.  In an effort to provide incentives to banks to start lending to small businesses again, the Obama administration has increased its guarantees on loans backed by the small business administration (SBA) and reduced/eliminated administration fees in certain kind of loans. 

• Small businesses eligible to receive SBA guaranteed loans are those that do not meet the standard requirements for a loan from a private lending institution, but for whom the guarantee makes it possible to access those loans (the private lending institution makes the determination).  Small businesses loans of up to $1,500,000 will now qualify for a 90% guarantee from the SBA, up from 75%.  The larger guarantee is likely to increase the chances that the small business will receive the loan.  The government is providing $375 million in funding to back these gurantees.
  

• For small businesses loans of up to $35,000, the government has increased by $30 million the pool of money dedicated to back this effort that should result in an additional $50 million in new loans.

• To help small businesses having difficulty meeting their existing debt payments, the government will spend $255 million - details of the program have yet to be disclosed.
  

In 2008 small businesses that are start-ups, minority owned and women owned account for 35%, 32% and 23% of all loan guarantees.  If you believe you may qualify, you should consult the SBA Stimulus Frequently Asked Questions and its loan guarantees web page. There are a variety of requirements including the need to provide personal guarantees for individuals that owned over 25% of the company. 

To further support these small business stimulus programs, the administration through the Treasury and the Federal Reserve will purchase up to $15 billion of small business loans in the secondary markets (to appreciate the size of the purchase, in 2008, $18 billion in SBA loans were issued).  Furthermore, the TALF will provide additional liquidity for private participants to acquire SBA loans.