Small Business Jobs Act and SBA Loans
Trying to buy a business using an SBA loan for the last two years has been a challenge as banks severely cut back on the volume of these loans. It finally took government action to pry open a tiny crack in the tight banking fists by increasing guaranteed portions of the loans and eliminating fees. Now with the passage of the Small Business Jobs Act, the government extended some features and added some stimulating features to encourage that fist to open up a little more and begin making more SBA loans. If successful, SBA loans, the primary source of funds when buying a small business, will be more readily available, thus stimulating our country’s lifeline—small business (for more information, click here).
The SBA has yet officially responded to the new law but will do so any day by issuing the new SOP, or standard operating procedures for the recent changes in the law. These will be available to lenders any day now. Key SBA-related changes in the bill are:
- Loan Size Increases. The bill increases the maximum loan size for SBA loan programs, increasing the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing-related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order – allowing them to create new jobs.
- Loan Guaranty Increases. The Small Business Association works with local banks to encourage lending to small businesses. They do this by guaranteeing small business loans by 75%. Should a small business owner default on the loan, the bank that made the loan would only lose a maximum of 25% of the loan amount. The SBA would then pay the bank the remainder of the 75%. Under this new bill, the SBA will guarantee 90% of a loan. This increase should even further encourage local banks to lend to business that may be in distress.
- Reduced fees for American Reinvestment and Recovery Act SBA loan guarantees. The reduced fees for SBA loan guarantees enacted by the American Reinvestment and Recovery Act of 2009 (ARRA) are extended to Dec. 31, 2010 (from Sept. 30).
- Retail floor plan refinancing. Creates a floor plan refinancing program, under which the SBA can guarantee open-ended extensions of credit to small businesses if the loan is used to purchase certain eligible retail goods for resale.
- Express loan enhancement. The maximum amount of express loans under Section 7(a) of the Small Business Act is increased to $1 million from $350,000 for one year from the date of enactment.
Other significant changes also found in the Small Business Jobs Act, which can significantly improve the cash flow of small business are listed below. These are good areas to cover with your CPA.
- Increased section 179 expensing.
- Extension of 50% first-year bonus depreciation.
- Zero tax rate on capital gains from IRC § 1202 small business stock.
- Increased section 195 deduction for trade or business startup expenses.
- Five-year carry back of general business credits.
- New deduction for self-employed individuals’ health insurance costs.
- Removal of cell phones from the definition of listed property.
- Limitations on section 6707A penalties for failure to disclose a reportable transaction.