If you're a small business owner, the Senate gave you some much needed assistance when they passed the Small Business Jobs Act. Since this wasn't a bill that had a lot of public fanfare attached to it, many small business owners may have missed it altogether. Here are six reasons to be excited about this. (Also learn about common errors owners make in 5 Expensive Small Business Mistakes.)
IN PICTURES: 8 Tips For Starting Your Own Business
How Big is Small?
First, what is a small business? These days, when the economy is such a major focus, politicians and economists throw around this term as if we all know how big a small business actually is. According to the United States Small Business Administration (SBA), this designation has different standards depending on the company's industry but one of two factors is measured: annual sales or number of employees. To see if your business qualifies, go here.
Now that you know if your business qualifies for benefits from the recently passed Small Business Jobs Act, let's examine the key provisions that will help you.
- $30 Million for Lending
Thirty-billion dollars will go directly to community banks specifically for lending to small businesses. Since 2008 small business lending has dropped by 17.8% according to the Senate summery of the bill and this injection of money is expected to encourage small banks to increase lending. This lending initiative, along with other incentives in the bill, is expected to create at least 500,000 new jobs. (Interested? Check out Start Your Own Small Business.)
- Microloans Are a Little Less Micro
A microloan is a loan for small and home based businesses designed to help in the creation of a small business or aid in their short term capital requirements. It can also be used for up to five years to pay existing loan payments so existing money can be used to continue growing the business. In the past, a business could only access a maximum of $35,000 in microloan funds. That amount increased to $50,000 with the passage of this bill.
- Bigger Deductions for Startups
If you are starting your business in 2010 or 2011, the Small Business Jobs Act would increase the amount you could deduct in business startup costs from $5,000 to $20,000. Additionally, other tax deductions including more favorable deductions for businesses who acquire real estate related to their business are included. (Need an influx of cash? Read How To Attract Investors For Your Small Business.)
IN PICTURES: Obtaining Credit In A Bad Economy
- No Loan Fees
The Small Business Jobs Act extends the elimination of Small Business Administration (SBA) loan fees. In the past small business owners had to pay loan processing fees to originate the loan. Previous legislation eliminated the fee and the latest bill extended it.
- 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 guaranty 90% of a loan. This increase should even further encourage local banks to lend to business that may be in distress.
- Saving the State Initiatives
Some states have lending funds for small businesses that can prove that additional funding would create jobs. As states face tighter budgets, some of these programs are disappearing. This bill will provide state level funding to allow these programs to continue. (What kind of credit should you have? Learn more in The Pros And Cons Of Small Business Credit Cards.)
The Bottom Line
All of this sounds nice but if you're a small business owner, you're most likely concerned that this money will never reach you. Most of these programs are administered by local community banks so the first thing to do is to go to the Small Business Administration website and find the nearest bank that is a SBA lending institution. Then, contact them and ask when the funding will be available. Until the bill passes in the House of Representatives, this funding will not be available but the House has already said that they support it so these funds should be available in a relatively short amount of time.
For the latest financial news, see Water Cooler Finance: Poverty Rates Increase - And So Do Millionaires.