Obama’s Small Biz Stimulus Package
This week our President talked about getting some much needed cash in the hands of struggling small businesses as soon as the end of this month. After all, a majority of all employers in the US are small businesses so they should be getting some help. But hey, we know that, we live it every day.
Hey, Obama needed to do something since he touts that he’s our guy for Main St. not Wall St. right? Yet AIG has already been given $170 billion and are now paying out Executive bonuses to the tune of $165 million. Not to mention that other large companies are being bailed out like Bank of America, Citigroup and JPMorgan Chase, many of which got us into this mess in the first place. It’s clearly time to get the country back to work and one way to do that is by helping small businesses. But will it happen?
So What Does It All Mean? First, Free Up Frozen Credit.
What had been happening is that the primary bank
lenders will try to sell the SBA (Small Business Administration) loans in the secondary market. Then they use the proceeds from selling these loans to make new ones for other small business owners. But since the credit crisis hit because of terrible ways that mortgages were being handled, investors have been scared off.
Now our government wants to step in to buy these loans to help unlock the current frozen credit
market. They’ll use some of the money from the massive $700 billion financial bailout package to the tune of about $15 billion in total.
I’ve read that as soon as the end of March the Treasury Department
would begin making direct purchases of securities backed by loans
guaranteed by the Small Business Administration. My fear is that it won’t happen in time for many small businesses and it will be a HUGE hassle to even get one of these loans.
What’s crazy is that small businesses
with good credit aren’t even able to borrow. I know that at VerticalResponse we have great credit yet all of our credit card limits from American Express to VISA were taken down overnight!
Tax Breaks and Reporting
With this new infusion the government would require that the top 21 banks that got federal funds will HAVE to give monthly reports that they’re lending to small businesses. The rest of the banks may need to report quarterly.
What’s more is that the Internal Revenue Service is going to issue tax breaks that will look something like this:
- Small businesses with a net operating loss in
2008 can elect to offset this loss against income earned in up to five
prior years, instead of the usual two-year limit. The gives small businesses increased cash flow so they can invest it in their businesses.
- Small businesses will be able to write off $250,000 on new
capital equipment investments which is nearly double the previous amount.
- They can reduce estimated tax payments to 90 percent of the previous year’s filing.
- They can take larger depreciation deductions within the first year of property purchases.
So hopefully our government will act fast to get this money into the hands and hearts of small businesses that can get it and use it. But there is a concern that many businesses still won’t get loans from the banks. And, since so many employers are small businesses, is just 2.1% of the overall bailout enough? I don’t think so.
Our government needs to remember, small businesses infuse money into our economy. We need to buy things like supplies, contractors, computers, software and shipping to run our businesses which can crank up the economy. And we’ll likely hire more people here in the US rather than in another country unlike larger corporations.
From what I’m seeing and hearing, the government needs to help us out with health care, rising costs of insurance, employee
payroll taxes and federal contract awards. And, since we’re rewarding execs for not being successful at companies like AIG, how about rewarding small business owners who are successful by giving them a break on personal and business tax cuts ? Then maybe we’ll get somewhere!
What do you think? Weigh in.
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