New Bill Brings Much Needed Aid to U.S. Small Businesses

This week President Obama signed a small business aid bill that could help. The Small Business Jobs and Credit Act of 2010 will create a $30 billion fund to help community banks — those with less than $10 billion in assets — make loans to small companies. The legislation also gives companies some $12 billion in tax breaks to write off new equipment purchases and, for the self-employed, to write off health-care expenses. And it extends a waiver, passed last year, allowing entrepreneurs to avoid Small Business Administration loan fees.   

Nonetheless, the small business legislation has come under harsh criticism. Though Senate democrats estimate that the legislation will create as many as 700,000 new jobs, some small business advocates charge that the bill does too little and that Washington should take bolder steps. Others claim that the legislation does too much and that small businesses face other serious regulatory hurdles the legislation does not address. “The loan program is being oversold,” says Karen Kerrigan, president of the Small Business and Entrepreneurship Council, an advocacy and research organization based in Virginia.   

There is little debate, however, that entrepreneurs are having difficulty getting credit. A recent study released by the Joint Economic Committee, a bipartisan congressional committee that focuses on national economic issues, found that the total value of loans to small companies fell by $60 billion between 2008 and early 2010. The National Federation of Independent Businesses (NFIB), one of the largest small business trade groups, reports that last year, only 40 percent of small businesses attempting to get loans had their credit needs met.   

Yet despite its own study, the NFIB offered only qualified support to the new lending legislation. “While the bill that passed … will help some small businesses that either qualify for the specific tax breaks or qualify for new loans, it falls short of addressing the most significant problems facing all small business owners — lack of sales and uncertainty,” says Susan Eckerly, senior vice president of the NFIB.   

Instead, the NFIB argues, Congress should focus on reducing tax reporting requirements for small companies and promoting a lower-tax business environment, which might spark growth and help small businesses establish companies that banks actually want to lend to.   

“Many banks actually have cash to lend right now. They are just not seeing many small business deals that have an appropriate level of risk to make them bankable,” says Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn.   

Yet other small business analysts praise the legislation. Though banks have repeatedly pledged to boost small business lending, they simply may not, given the economic climate, without the government stepping in to assist the bankers. Rieva Lesonsky, chief executive officer of small business content provider GrowBiz Media and a columnist for AllBusiness.com, thinks that despite criticism of the bill, community banks are in the best position to know if an entrepreneur asking for a loan is a good credit risk, and therefore will make prudent decisions.   

In addition, notes Independent Community Bankers of America Chairman Jim MacPhee, community banks will be able to build on the new government funding with their own money, increasing the amounts available to small companies and giving entrepreneurs more options for credit. The money that “banks can receive through this legislation could be leveraged to provide as much as $300 billion of new credit to small businesses,” MacPhee says.   

But while some business owners are desperate for loans to help shore up cash flow and other needs, cash is not the cure-all for every entrepreneur’s business woes. “Why would I want to take out a loan and go into more debt, or hire people I cannot afford?” asks Rendl.   

As the economy improves and business picks up, however, small companies that have managed to survive will need to make improvements after years of holding costs down, and they’ll need capital to do so, says Lesonsky. And maybe, in the long run, that capital can help dig out entrepreneurs like Rendl.   

Find out more details about the Small Business Jobs and Credit Act at govtrack.us. To learn more about how to access loans, visit the Independent Community Bankers of America, which lists community banks across the country.