WASHINGTON — The Small Business Jobs and Credit Act of 2010, signed by President Obama on Sept. 27, provides $12 billion in tax cuts and creates a $30 billion fund for community banks to increase lending to small companies.

Hiring by small businesses is considered a key driver of job growth. The bill aims to stimulate hiring by making credit more available to small businesses, many of which have had difficulty securing bank loans and credit during the recession.

Several Small Business Administration (SBA) lending programs have been extended under the new law. In fact, within a week of the bill’s passage, 2,000 small business owners who had been waiting for loans from the SBA were approved, according to the SBA’s Web site.

Installing security contractors interested in the newly expanded lending options, however, should temper their expectations, according to Tony Smith, president of Security Finance Associates Inc., a private investment banking firm serving the alarm industry.

Since many SBA loan programs require fixed collateral, such as a residence or other real estate, security dealers/integrators cannot expect to use alarm contracts to meet lender requirements, Smith says.

“SBA lenders do not generally recognize alarm contracts as collateral because they are viewed as intangible assets. It requires a specialized lender to make those loans,” Smith says. “Dealers are going to need other types of assets to put up as collateral.”

Besides real estate other eligible asset types may include land, equipment, inventory, accounts receivable and securities.

For those credit-worthy companies that do qualify, the new law’s $12 billion tax relief to help small businesses invest in their firms comprises eight separate tax cuts that have already taken effect. One of the provisions increases to $500,000 the amount of investments that businesses would be allowed to write off this year and in 2011.

Other tax cuts include carry-back provisions on net operating losses of up to five years; deductions for employer-provided cell phones; deductions for health insurance costs for the self-employed; and limitations on penalties for errors in tax reporting that disproportionately affect small business.

“It is already starting to have a positive effect. Certainly the most immediate impact is there was a fee waiver for the SBA program through December of this year. All the borrowers who have an immediate need have the opportunity to take advantage of that,” Bob Forsythe, chief banking officer at Irvine, Calif.-based Plaza Bank, tells SSI.

Plaza Bank, similar to other community banking institutions across the nation with small business lending programs, is expecting a significant increase in business loan activity in the fourth quarter following passage of the bill.

“The act really broadens SBA lending guidelines and allows more flexibility in the program. We can cast a broader net and help more small businesses in more aspects of whatever financing needs they may have,” Forsythe says.

Among other benefits enacted by the law are measures to provide temporary working capital and commercial real estate refinancing. Here, the law increased the maximum amount of SBA Express loans from $350,000 to $1 million through Sept. 27, 2011.

In coming months, the law will allow some small businesses to refinance their owner-occupied commercial real estate mortgages into the 504 loan program, which provides long-term, fixed-rate financing to acquire assets such as real estate or equipment. This temporary provision will expire Sept. 27, 2012.

Other lending program modifications have been made permanent, including an increase in microloan limits from $35,000 to $50,000. These loans are intended for working capital or the purchase of inventory, supplies and other goods or equipment. Microloans cannot, however, be used to pay existing debts or to purchase real estate.

 

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