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The $30B Small Business Loan Law in Perspective

By Robert Freedman, Senior Editor, REALTOR® Magazine

President Obama signed into law a $30 billion loan find for small business. The law also provides $12 billion in tax breaks and tries to improve existing loans to small businesses that are backed by the U.S. Small Business Administration.

When compared to the $800 billion stimulus enacted when Obama took office and the massive reform laws for health insurance and Wall Street financial services companies, the small business loan law is small potatoes. But there are some things you should know about it.

First, although the $30 billion isn’t a giant number for the federal government, it has the potential to leverage some $350 billion in financing, and that is a big number. And, importantly for deficit hawks, the new law is funded without requiring the government to issue new debt. It’s paid for by increasing certain tax penalties and by closing some tax provisions.

What’s important for you is that, even if the new law works as planned and in fact induces small banks to boost their lending to small businesses, there’s no assurance that any bank you work with will participate.

That’s a big complaint with the loans to small businesses that are backed by the Small Business Administration (SBA). These loans (known as Sec. 7(a), Sec. 504, and ARC loans) are touted as a way to help small businesses get money to retire expensive debt or do other things during these tough times, but NAR has heard many concerns from members that lenders aren’t participating, or that, if they are participating, they’re not bending over backwards to make loans to independent contractors (who the SBA says are eligible applicants).

So, if you’re thinking about applying for a loan with a community bank in your area, there might be few or no banks participating and, even if they are participating, there’s no guarantee they’ll make a loan to you. Of course, the law encourages lenders to participate by giving banks that make a lot of loans better terms for paying back the government than if they don’t make a lot of loans.

If you’re a commercial broker, your main interest in the program might be the opportunity it offers your clients. If you’re working with a client that’s been having trouble getting a loan to buy space or otherwise expand, you can let them know about the money the federal government is making available to community banks and maybe they’ll be able to get a loan they otherwise wouldn’t have been able to get.

Money aside, you might find the tax breaks helpful. Among other things, if you’re self-employed, you can now deduct your health insurance premiums on your self-employment tax, at least for the 2010 tax year. You can expect to see an effort to get that extended beyond the 2010 tax year. You can also get better tax treatment on deducting your cell phone use, even when you use your cell phone for both business and home. And, of benefit to commercial practitioners, there’s an extension of the 50 percent bonus depreciation for qualified property.

On those SBA Sec. 7(a), Sec. 504, and ARC loans I mentioned earlier, the new law increases the maximum loan amounts for them and otherwise eases some terms. Hopefully, lenders that haven’t been keen to make many of those loans will now start making more of them, but you never know.

All in all, the new law offers you opportunity. But there’s nothing certain about the extent to which you’ll benefit, at least in terms of the loan funds. But the tax breaks are there for everyone if they’re applicable to you.

In the video interview above, NAR analyst Vijay Yadlapati talks about the new law. And there’s a good summary of the law’s provisions on the White House website.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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