Small Business Jobs Act: FAQ

What does the Small Business Jobs Act do?

The law provides tax cuts and improved access to capital to help small businesses weather these difficult economic times and create the jobs our country needs right now. Specifically, the legislation includes eight new tax cuts for small businesses and establishes a $30 billion lending fund which is expected to leverage around $300 billion in private-sector lending to small businesses. In addition, the law creates a $1.2 billion State Small Business Credit Initiative, under which Washington state government will receive $19.8 million to support small business job growth. It also extends successful Small Business Administration (SBA) Recovery loan programs and increases the maximum loan size for SBA loan programs. More information on the Small Business Jobs Act from Senate Finance Committee is available here.

How will the Small Business Jobs Act help our economy recover?

Small businesses are the growth engine that drives our economy, but since the financial crisis began in the fall of 2008, many small businesses have had their lines of credit taken away or struggled to secure the capital they need to run and expand their businesses. Improved access to capital, particularly through community banks that many small businesses rely on, and the availability of new growth incentives will enable American small businesses to follow through with long-postponed investments, expand their businesses, and hire more employees.

What is the Small Business Lending Fund?

Frozen credit markets caused by the Wall Street meltdown continue to prevent even strong businesses from accessing capital. The Small Business Lending Fund (SBLF) seeks to help rectify this problem by investing $30 billion into healthy community banks with under $10 billion in assets. The fund is structured to give community banks a financial incentive to make loans to credit-worthy small businesses. Banks will pay the U.S. Treasury a dividend rate that would decrease as their lending to small businesses increases -- starting at 5 percent and going as low as 1 percent for banks who increase lending by 10 percent. The Independent Community Bankers of America estimate that the $30 billion fund will generate up to $300 billion in small business lending.

Can we afford another big $30 billion government program?

Actually, the Small Business Jobs Act will not increase the federal deficit. According to the non-partisan Congressional Budget Office (CBO), the Small Business Lending Fund will actually reduce the federal deficit by $1.1 billion over ten years as banks repay the investment.

I am a small business owner. Am I qualified for a loan? How do I obtain one?

Businesses with under $50 million in annual revenues are eligible for loans from the Small Business Lending Fund (SBLF). The Act defines "small business lending" as commercial and industrial loans; owner occupied nonfarm, nonresidential loans; and loans to farmers. Loans must be under $10 million to qualify as small business lending for the purposes of the SBLF.

The Department of the Treasury, in consultation with bank regulators, will approve banks to participate in the SBLF. Once SBLF participation is announced, you should contact participating community banks to apply for a loan. You can also inquire with your bank whether or not they are applying for or participating in the SBLF program.

What about Small Business Administration (SBA) Loans?

The Act makes several improvements to the SBA's small business lending programs, which provide guarantees for loans to small businesses. The Small Business Jobs Act extends a Recovery Act program that increased the portion of a loan the SBA will guarantee from 75 percent to 90 percent of the loan and eliminated associated fees. The Small Business Jobs Act also increases limits on the size of SBA loans: The 7(a) loan limits increased from $2 million to $5 million and the 504 loan limits increased from $1.5 million to $5.5 million. For more information on the SBA's loan guarantee programs, please visit SBA's website.

What new tax breaks are available for small business owners?

This bill provides eight new tax cuts for small businesses nationwide to provide access to capital, encourage investment and entrepreneurship, and promote fairness for small business taxpayers. Together, these tax breaks make it easier for businesses to make new investments and expand. More detailed information from the Internal Revenue Service is available here, as well as from the Joint Committee on Taxation here.

1. Zero Taxes on Capital Gains from Key Investments in Small Businesses: Under the Recovery Act, 75 percent of capital gains on investments in qualified small business stock can be excluded from taxable income. The Recovery Act provision applies to stock acquired after February 17, 2009 and September 27, 2010 -- the date of enactment of the Small Business Jobs Act, which increased the exclusion to 100 percent, eliminating all capital gains taxes on these investments. Now, for investments made before January 1, 2012, and held for at least five years, investors will be able to exclude 100 percent of capital gains on qualifying stock. More than one million small businesses stand to gain much-needed capital from increased investment in small businesses.
   
2. Expanded Ability to Immediately Expense Capital Investments: For 2010 and 2011, the bill increases the amount of capital investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investment at which the write-off phases out to $2 million. With the Small Business Jobs Act, the expensing limit would have been $250,000 this year, and only $25,000 next year. This provision allows 4.5 million small businesses and individuals to make new business investments and know that they will earn a larger break on their taxes for this year.
   
3. Extension of 50 Percent Bonus Depreciation: The bill extends a Recovery Act provision for 50 percent "bonus depreciation" through 2010. This provision effectively provides two million businesses, large and small, 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. This depreciation tax incentive was further extended and expanded by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, to 100 percent depreciation for investments placed in service through the end of 2011, and 50 percent through 2012.
   
4. A New Deduction of Health Insurance Costs for Self-Employed: The bill enables two million self-employed individuals to claim a deduction for the cost of health insurance for themselves and their family members when calculating their self-employment taxes for 2010. This provision provides an estimated $1.9 billion in tax cuts to these entrepreneurs.
   
5. Tax Relief and Simplification for Cell Phone Deductions: The bill permanently changes rules so that the use of cell phones can be deducted without burdensome extra documentation -- making it easier for virtually every small business in America to receive deductions that they are entitled to.
   
6. 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 2010 taxes from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
   
7. Five-Year Carryback Of General Business Credits: 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 these small businesses.
   
8. Limitations on Penalties for in Tax Reporting Errors: Beginning in 2010, the bill would alter 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.

When does this law take effect?

The eight tax provisions took effect shortly after it was signed into law on September 27, 2010, providing an immediate incentive to businesses to expand and hire new employees. And Washington small business are already benefitting from the SBA loan improvements, with the first wave of $15.7 million in loans to 27 Washington small business approved on October 8. Application materials for the Small Business Lending Fund were made available on December 21, 2010; banks are encouraged to apply by March 31, 2011.