The Small Business Jobs Act of 2010, signed into law by President Obama in late September, is designed to tackle America’s continuing high unemployment rate by bolstering that sector of the American economy that has traditionally been responsible for the creation of the most American jobs: the small business sector. Small businesses, defined by the Small Business Administration (SBA) as any commercial concern with fewer than 500 employees, employ slightly over half of all private sector employees and over the past 15 years have generated close to 65% of all new jobs.
It’s no secret that the recent economic downturn has hit business where it hurts. Even in prosperous times, business formation is a risky endeavor: over half of all small businesses fail within their first year, in part because their owners have an incomplete knowledge of the business law necessary to guide them through business formation. In the year 2008, the first year of the recession, almost as many of these businesses closed as were started, and many of those businesses had been in operation over ten years.
The 2008 $825 billion economic stimulus package contained very few provisions aimed at helping small businesses. The Act sought to rectify that situation by extending loan enhancements first put into place by the American Recovery and Reinvestment Act of 2009. Among other things, the Recovery Act allowed the SBA to raise the government-backed guarantee on its 7(a) loans to 90% and it also allowed the SBA to waive its $1,000 packaging fee on both its 7(a) loans and its 504 loans.
While loan modifications such as these make SBA loans a more attractive and useful option for entrepreneurs, it also makes the already complicated process of transacting an SBA loan even more complicated. Dealing with the SBA can already be problematic for startups, particularly those involved in non-traditional commercial ventures such as online businesses. In order to take the best advantage of the loan modifications, tax breaks and accelerated pay-outs offered under the new business assistance bill, startups and other businesses would be well advised to engage the services of an experienced business attorney who understands exactly how the Act can aid business formation.
Provisions of the Business Jobs Act
In addition to the loan modifications the Act contains other provisions designed to help small businesses attain access to the capital they need for operations and expansion. These include:
- A permanent increase in the size of the maximum loan available under the 7(a) and 504 loan programs from $2 million to $5 million; a corollary increase in the maximum loan amount available through the 504 loan program specifically targeted at manufacturing from $4 million to $5.5 million.
- A permanent increase in the microloan cap from $35,000 to $50,000 specifically designed to help entrepreneurs and startups.
- A temporary increase in the loan amount available to SBA Express loan recipients from $350,000 to $1 million.
The bill also introduced eight significant tax cuts for small businesses:
- The elimination of all capital gains taxes for business investments held five years or over.
- An increase in the write off for capital investments from $250,000 in Year One and $25,000 in Year Two to $500,000, and increasing the threshold for these write-offs to $2 million.
- An extension of the 50% bonus depreciation through the close of 2010.
- A health insurance deduction for the self-employed.
- Simplified rules regarding the deduction of cell phones and cell phone-related expenses.
- A temporary increase in the deduction for start-up costs from $5,000 to $10,000 (with a ceiling of $60,000.)
- For certain businesses, the ability to offset taxes – including the Alternative Minimum Tax – through business credits from the past five years.
- A decrease in penalties for tax errors that disproportionately affect businesses and small business owners (particularly sole proprietors.)
An Experienced Business Lawyer Can Help
The Small Business Jobs Act of 2010 provides significant new advantages to small business owners and to entrepreneurs who are in the process of forming a new business. Counterintuitive though it might sound, historically recessions have been excellent times to launch startups. Just ask FedEx.
However, the SBA process is extraordinarily difficult to navigate without the assistance of someone who is well versed in business law. Traditionally, the SBA has been very reluctant to make loans to startups: without a proven track record, the new small business owner is seen as a loan risk. An online business may be viewed as even a greater risk since in many cases it lacks the equipment and other capital that is viewed by the prospective lender as collateral in the worst-case scenario that a repayment schedule cannot be met. If you want to leverage the many benefits offered by the Small Business Jobs Act of 2010 on behalf of your startup, your wisest course is to consult with an experienced business attorney.