Small Business Jobs and Credit Bill Highlights

It’s official! Selected Provisions Affecting 7(a) and 504 Reid Amendment 4594 to H.R. 5297 (Small Business Jobs & Credit Bill). Here is a recap.

SBA Credit Incentives:

• Fee Reductions: extends the authority for 7(a) and 504 fee reductions and 90% 7(a) guarantees through December 31 or until $505 million in appropriations is obligated.

• Maximum Loan Amounts: permanently increases the loan maximum on 7(a) loans set at $5 million gross and $3.75 million net (or guaranteed amount) and on 504 loans, including public policy loans, set at $5 million, except small manufacturer loans and energy loans are set at $5.5 million.

• Maximum Loan Amount of SBA Express: temporarily increase the maximum amount of an express loan at $1 million for 1 year.

• Division of Large Loans: upon request of a loan pooler, SBA will divide a large loan into $500,000 increments for inclusion in separate pools.

• Dealer Floor Plan Financing: new financing program for dealers for cars, RVs, boats and manufactured homes, but sunset September 30, 2013.

• Alternative Size Standard: pending SBA establishment of an alternative applicable to both 7(a) and 504, establishes a standard of maximum tangible net worth of $15 million and 2-year average net income after Federal income tax of $5 million which will apply to both programs.

• International Trade Loans: makes numerous changes in international trade loans, including working capital, primarily permanent loan size increases to $5 million and 90% guarantees and making the export express program permanent.

• Debt Refinancing: establishes a temporary 2-year program of business debt refinancing through the 504 program independent of the usually required job creation/preservation goals of one job for $65,000. This enables 504 to be used for refinancing of qualified existing debt without business expansion.

• Guarantees of 1st mortgage loans: extends the sunset on the new temporary program for partial guarantees of the bank portion of 504 financing. The program will expire 2 years after the date the first pool sale occurs.

• Microloans: permanently increases the maximum per small business borrower to $50,000 and per intermediary to $5 million. Also authorizes SBA to waive intermediary match requirements during fiscal years 2011 and 2012.

• Intermediary Lending Pilot: establishes a 3-year pilot program to provide capital to 20 non-profit intermediaries annually to make loans targeted to startup, newly established and growing small business concerns. CDCs should be eligible to participate.

Tax Incentives:

• Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments were excluded from taxes in 2010. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision eliminating all capital gains taxes on these investments if held for five years.

• Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 from $250,000 to $500,000 the amount of investments that businesses are eligible to immediately write off.

• Extension of 50% Bonus Depreciation: The bill extends a Recovery Act provision for 50 percent “bonus depreciation” through 2010 with the ability to make new investments today and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.

• A New Deduction of Health Insurance Costs for Self-Employed: The bill allows self-employed to deduct the cost of health insurance for themselves and their family members when calculating their self-employment taxes.

• Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules so that the use of cell phones can be deducted without burdensome extra documentation.

• An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures).

• The bill would allow certain small businesses to “carry back” their general business credits to offset five years of taxes: providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for small businesses.

• The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances to a percentage of the tax benefits from the transaction.