The Economic Stimulus Bill and Small Business

There’s plenty of talk about the new economic stimulus bill. But if you’re not sure exactly what it means for small-business owners, you’re not alone.

If you’re feeling like the current credit crunch can’t squeeze you any tighter, relief is in sight. The American Recovery and Reinvestment Act of 2009 includes plenty of provisions that will benefit Main Street. Here are some components you can capitalize on.

Loans. The most immediate benefit to small businesses is the increased availability of Small Business Administration (SBA) loans.

Thanks to $15 billion from the government, banks can once again sell a portion of their loans to companies, which then pool the loans together and sell them as securities to investors. This provides community banks and credit unions with additional capital for lending to small businesses.

Two additional loan-related provisions from the Recovery Act also benefit small business.

The first eliminates fees for 7(a) and 504 loans for 2009. Lenders who participate in the SBA loan program provide 7(a) loans, which are the most basic and most common type of loan, to small-business owners. The 504 loans provide fixed-asset financing for purchasing land and constructing new buildings, purchasing and renovating existing buildings, acquiring and installing machinery, and expanding facilities.

The second raises guarantee levels on 7(a) loans to 90 percent this year, which means lenders will feel more secure loaning funds to small businesses than they have in recent months.

If you need a loan for working capital, machinery and equipment purchases, leasehold improvements, debt refinancing and more, now is the time to apply with an SBA participating lender.

Of course, getting a loan is never a sure thing. “If a business was credit worthy a couple of years ago and has had problems since then, they stand a fair chance of getting a loan now,” says SBA spokesperson Mike Stamler. But if you wouldn’t have gotten a loan before the market went south, you may still be out of luck.

Unless you have a crystal ball, you can’t predict what challenges you’ll be faced with in coming months. That’s why the provisions cover the fact that some small-business owners may have trouble making payments on existing loans. The America’s Recovery Capital (ARC) loan program will offer deferred payment of up to $35,000 on loans guaranteed by the SBA after February 17, 2009. That means you can wait 12 months after the loan is fully disbursed to begin paying. This is just the help some struggling small companies may need to stay afloat during tight times.

To find out if you qualify for SBA financial assistance and to learn how to apply, visit the SBA website.

Carryback. If your business deductions exceeded your income in 2008, a special “carryback” provision allows for a refund of taxes paid in up to five previous years. That means if you had a large net operating loss in 2008, you can benefit fully from that loss now rather than waiting to claim the losses on future returns.

To qualify for the five-year carryback provision (a two-year carryback is standard), you must have less than an average of $15 million in gross receipts over a three-year period ending in 2008 and must file Form 1045 or Form 1139 within one year after the end of the net operating loss tax year.

More business. A major goal of the Recovery Act is, of course, to stimulate the economy. One method of doing this is through the Making Work Pay provision. This provides a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns (as long as their adjusted gross income is less than $75,000 for individuals or $150,000 for married couples filing jointly). The benefit to businesses: More money in customers’ pockets.

Remember, however, that as an employer you must implement withholding adjustments in 2009 as part of the Making Work Pay provision. Learn more at irs.gov.

COBRA. In the unfortunate event you have to let employees go, the Recovery Act includes a provision that allows the federal government to subsidize 65 percent of COBRA costs for employees who are laid off between September 1, 2008, and December 31, 2009. Former employees will be responsible for the remaining 35 percent of the costs.

The temporary COBRA assistance provisions apply to group health plans sponsored by employers with 20 or more employees as well as small businesses in the 40 states that have mini-COBRA laws.

Because employers and insurance companies are responsible for administering the subsidy, you may need to meet new administrative or notice requirements. Visit dol.gov/ebsa/cobra.html to determine whether your state has a mini-COBRA law and to find out what you need to do to meet requirements.

For more information on components of the American Recovery and Reinvestment Act that apply to small businesses, visit sba.gov or recovery.gov.

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