The President Urges Small Biz Tax Breaks, Loan Initiatives

By Robert Steere, Toolkit Staff Writer

President Obama urged Congress to pass a small business jobs package as soon as possible that would include small business tax incentives, new lending initiatives, and enhancements to Small Business Administration (SBA) loan programs. He made his remarks at a White House event recognizing National Small Business Week and honoring Small Business Owners of the Year from across the country.

Tax incentives in the package would include the elimination of tax on capital gains from certain investments in small business stock, the extension of bonus depreciation on facilities and equipment through 2010, and the extension of the special first-year expensing of capital investments.

The president seeks to include two small business lending initiatives--a $30-billion small business lending fund and a new state small business credit program.

The third segment of the package would include enhancements to SBA loan programs--permanently increasing maximum loan sizes; expanding access to commercial real estate refinancing under the 504 program; and supporting smaller loans and early stage companies.

"I'm calling on Congress to pass a small business jobs package as soon as possible," said the president. "This legislation should ensure that credit worthy small business owners can get the capital they need to expand and create jobs. It should include needed tax relief, like our proposal to completely eliminate capital gains taxes for those making key long-term investments in small businesses. It should include expansions of vital Small Business Administration loan programs that are needed now more than ever. And it should include two important lending initiatives that I recently sent to Congress (referring to the small business lending fund and the new state small business credit program). I urge both chambers to act on these proposals as soon as possible."

The effort to pass a small business jobs package follows up on legislative actions already taken, including earlier enhancements to SBA programs, a new Small Business Health Care Tax Credit, and the new payroll tax exemption and credit passed through the HIRE Act. Following are some more of the details of the proposed package.

Tax Incentives for Small Businesses

• Eliminate tax on capital gains from sale of small business investments. Currently, 75 percent of the capital gain from the sale of certain small business investments is exempt from income tax. This proposal takes one step further--it eliminates all income tax on capital gains from the sale of these small business investments.
• Extend Section 179 first-year expensing. The proposal would extend special first-year expensing under Section 179 of the costs of qualified investments in facilities and equipment. The Administration does not indicate for how long or how much value the special expensing would be extended. The amount allowed to be expensed is scheduled to drop dramatically at the end of 2010.
• Extend "bonus" depreciation through 2010. The provision that allows businesses to deduct an additional 50 percent "bonus" depreciation in the first year that qualifying assets are placed in service would be extended through 2010. The provision expired at the end of 2009.

Enhancement of SBA Programs

• Permanently increase maximum SBA-guaranteed loan sizes. The proposal would permanently raise the maximum size for loans under the 7(a) program from $2 million to $5 million; under the 504 program from $2 million to $5 million (and up to $5.5 million for manufacturers); and under the SBA Microloan program from $35,000 to $50,000. The Administration also proposes temporarily to increase the maximum SBA Express working capital loan size from $350,000 to $1 million through September 2011.
• Expand access to commercial real estate refinancing under the 504 program. The proposal--which would have no additional cost to the taxpayer--would help small firms refinance their mortgages on owner-occupied properties used in their business operations that might otherwise face foreclosure or liquidation. The proposal would allow for refinancing through September 2011 with an option to extend through September 2012.
• Support smaller loans and early stage companies. The Administration is hoping to develop additional SBA programs that can support small business financing, including programs to address the unmet need for smaller-sized loans and programs to support investment in businesses in the earliest stages of establishment and growth. No detailed recommendation or proposal is presented.

New Lending Initiatives

• Small Business Lending Fund. $30 billion in capital would be provided through the small business lending fund--a new initiative independent of TARP--with little to no expected long-term cost to taxpayers. It includes a program intended to assist small, community banks with less than $1 billion in assets that do a large share of their commercial lending in small loans to small businesses and farms. It would provide incentives to such banks to expand their commercial lending to small businesses and farms.
• New state small business credit initiative. This new initiative aims to strengthen state programs that support lending to small businesses and small manufacturers. The intent is to support innovative small business lending programs that have been threatened by state budget shortfalls. States would be required to use federal funds for programs that leverage private lenders to extend greater credit to small businesses and manufacturers who are credit worthy, but may not be getting the credit they need to create and expand jobs. States would be required to demonstrate at least $10 in new lending for every $1 in federal funding. The program will allow states to build upon successful models for state small business programs, including capital access programs, collateral support programs, and loan guarantee programs, including those targeted at rural and agricultural small businesses.

These initiatives, if enacted, can offer financial opportunities for small businesses to grow and to hire new employees. Be alert to future legislative actions that could implement these programs.