Small Business Lending Bill Becomes Law

President Obama signed the Small Business Lending Bill (HR 5297) into law.  At a total cost of $42 billion, this legislation aims to assist small businesses through both increased access to capital and tax benefits; it also includes an assortment of trade and contracting provisions.  The predominant access to capital provisions are a Small Business Lending Fund, a State Capital Access Program and increased limits for some SBA loans. 

The $30 billion Small Business Lending Fund (to be administered by the Department of Treasury) will be available for capital investments in small banks (community banks with assets of $10 billion or less) coupled with incentives for those banks to increase small business lending.   The interest rate is set at 5 percent, but will be reduced to as low as 1 percent for banks that increase small business lending by 10 percent or more.  On the other hand, the rate would increase to 7 percent for those banks that do not increase their small business lending within two years following the loan.  This program allows maximum loans of $5 million for borrowers with 500 employees or less.

The legislation also allocates $1.5 billion in grants to state capital access programs (state-sponsored “insurance” programs for riskier loans that are supported by a reserve fund into which both the bank and borrower pay an up-front premium that is matched by the state) or other state credit initiatives for lending to small businesses and manufacturers. States and state programs that apply to Treasury for federal contributions must show how the funds will be used to provide capital to small businesses in low and moderate-income, minority, and other under-served communities, including women- and minority owned small businesses. 

A qualifying program could be administered by the state, or the state could contract with another entity to run the program, such as another state that has an existing program, or a bank or nonprofit organization in that state. If a state chooses not to participate in the program, municipal governments within that state can submit plans for approval.   Maximum loans of $5 million would be targeted to borrowers with 500 employees or less, but no loans could be made to borrowers that have more than 750 employees.

Small businesses should remain vigilant concerning the implementation of this legislation and whether their bank or state is qualified (and plans) to participate in one of these programs.  Some businesses might want to consider initiating a relationship with a community bank that both qualifies and expects to participate in the lending fund program.  Similarly, businesses should review whether their state has an ongoing state capital access program and whether that program expects to participate; if not, it would be advisable to identify municipalities or other entities that can step up to claim the allocated funds.  While we would expect most qualifying banks and state funds will benefit from participation, CompTIA will follow implementation to be certain that these programs produce the desired effect of increased access to capital for small businesses.  

Additional access to capital will be provided by increasing certain SBA loan limits.  The maximum SBA guarantee on 7(a) loans is increased to 90 percent, and fees for 7(a) and 504 programs are temporarily eliminated.  Also, maximum loan amounts are increased:  Section 7(a) loans from $2 million to $5 million; Section 504 loans from $2 million to $5 million; and SBA microloans from $35,000 to $50,000.   The SBA Express program limitation would be increased from $350,000 to $1 million for one year.

And finally, there are a number of tax provisions that will benefit small businesses.  The popular small business equipment expensing provision (§179 expensing) limitation is increased from $250,000 to $500,000 for calendar years 2010 and 2011; likewise, the 50-percent bonus depreciation provision is extended through 2011.  Also, a special provision would allow a 100-percent exclusion of gain on investments made in small businesses made before 2011 (a very short time frame).  The small business expensing provision is especially important to VARs as it provides an incentive for purchases of technology, and it also provides tax benefits for VARs to invest in their own businesses.

For a number of years, small businesses have pleaded for assistance in gaining access to capital – which had virtually dried up during the economic slump. Clearly this legislation seeks to address this need.  However, it would have been preferable to have included a direct lending provision to address the immediate needs of small businesses, and CompTIA will continue to advocate for more immediate and direct relief for member companies and IT industry.   Positive benefits flowing from the lending fund will only come sometime in the future as the Department of Treasury must now work to set up the program for distribution of these funds to community banks – which will hopefully then increase their small business lending.