President to Lend Aid to Small Business Owners
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In the business world, it always seems that the larger corporations are always
getting a boost at the expense of the smaller companies. Not this time. In a
statement released by the Obama administration, President Barack Obama revealed a
plan that calls for upwards of $15B worth of funding for small businesses.
"We know that small businesses are the engine of growth in the economy, and we
absolutely want to do things to help them," commented Christina Romer, head of the
Council of Economic Advisers late Sunday.
Obama added that small businesses are, "one of the biggest drivers of employment
that we have" and that his administration is "working diligently to increase
liquidity throughout the financial system." The president went on to add,
"Understand, this is still going to be a first step in what is going to be a
continuing effort to make sure people get credit out there."
The proposal consists of two parts, the first being the "7a program," which will
allow small businesses to get loans of upwards of $2M that will be 100% backed by
the government through the Small Business Administration (SBA). Under the current
plan, the government only guarantees upwards of 85% of loans below $150,000, and up
to 75% of all loans exceeding that amount.
In previous years, the SBA typically guaranteed upwards of $20B worth of small
business loans. However, this year, with the economy in the state that it is in,
the SBA is looking to guarantee loan below $10B in total.
The second program, the "504 program," gives the government the ability to invest
upwards of $4M worth in economic development projects for small businesses. The
main goal of the initiative is to reduce the costs to both borrowers and lenders
participating in the program.
Beginning March 16, the administration will wave all fees for lenders and borrowers
on any new 504 applications. They government believes that these programs will
reduce the risk lenders face when they make loans to small businesses that have
trouble finding credit on their own.
"When banks individually pull back out of a sense of prudence and caution, the
collective impact of those actions will make the economy weaker and make each
individual bank worse off," Treasury Secretary Timothy Geithner proclaimed. "By
pulling back on credit, you push businesses to pull back, and this dynamic can feed
on itself."
Geithner also ordered the Internal Revenue Service
(IRS) to institute new rules pertaining to tax breaks for small businesses on a
temporary basis. These rules include any small business that earns more than $15M
in gross revenues to be allowed to claim any losses over the past five years in
their current taxes. In addition, the companies may also write-off upwards of
$250,000 in investments this year.
Furthermore, companies will be permitted to take larger depreciation expenses off
their books for properties purchased within the first year. Small businesses will
also see 75% of capital gains excluded for those that invest in other small
businesses. Finally, smaller companies can reduce estimated tax payments to 90% of
the previous year's filings.
In response, the Treasury Department released a statement following Monday's
actions that the department "stands ready to purchase new securities to ensure that
community banks and credit unions feel confident in extending new loans to local
businesses."
"The Obama administration firmly believes that economic recovery will be driven in
large part by America's small businesses, which have generated about 70% of net new
jobs annually over the past decade," Treasury officials added.
Monday's news is the most recent from the incumbent president's drastic measures to
help stimulate the economy.
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