Small Business and the Stimulus Plan

It does not look like there is a lot of direct relief for small business in the current plan. Creating spending is certainly an indirect stimulus as goods and services will be needed. Not all businesses will be able to capture spending from the bill which leads many to believe small business recovery will be uneven.

Caitlin McDevitt writes in this Inc. Magazine article about what small businesses can expect from the current stimulus about to land on President Obama's desk.

The Big Stimulus: What's in it for Small Business?

When President Barack Obama first lobbied for support for his economic stimulus plan in late January, he touted it as an immediate lifeline for struggling businesses across the country. "The businesses that are shedding jobs to stay afloat, they cannot afford inaction or delay," he said.

The President's urgent appeal has swayed enough members of the House to pass the $819 billion bill, and the Senate, yesterday approved their $838 billion-version of the bill. During his press conference on Monday night, President Obama said he hoped the two houses of Congress could hammer out their differences and present him with a final bill by the end of the week.
Embedded in both versions of the massive stimulus package—which include funds and relief allocated across various sectors—are some breaks for small business. Many small business owners struggling to get by are now wondering what this plan would mean for them and, even more, if the relief it promises would come soon enough.

"We expect most of these provisions to be relatively quick moving," says Rep. Nydia Velazquez (D-NY), chairwoman of the House Small Business Committee, who voted in favor of the stimulus. In particular, she says that targeted tax relief measures should help small business owners in the short term.

For those companies that have slumped recently but performed well in past years, both versions of the plan would allow them to file for cash refunds. Businesses with a net operating loss (expenses exceeding revenue) for this year could use the loss to offset profits made in the past five years, extended from two years, according to Barbara Weltman, an attorney who specializes in small business tax law. "It's a good thing because this applies for 2008, so businesses that haven't filed their returns yet will be able to go back five years with 2008 losses and recoup the size of that loss," she says.

Those business owners who are in a position to buy new equipment, such as computers, refrigerators, or machinery, are in luck – the House and Senate plans would allow them to immediately write off the cost of these purchases up to $250,000. Of course, many struggling companies may not be able to afford to invest in big-ticket items now anyway, says Weltman. "This is not meaningful to most small businesses," she says, "especially in a year when so many are struggling to pay the bills."

And in an attempt to thaw the frozen lending market that has made it difficult for many small businesses to get the capital they need, the stimulus will likely include measures to facilitate borrowing backed by the Small Business Administration. These provisions may include increased loan guarantees to appeal to risk-averse lenders, waived borrowing fees, and higher maximum loan limits.

"This should really help to open things up and to get the money flowing again," says Todd McCracken, president of the National Small Business Association, though he remains skeptical of whether that alone will be enough to jumpstart the economy. "It's a gamble," he says.

Many small business advocates are disappointed with what the stimulus plan does not include. Bill Rys, tax counsel for the conservative Washington D.C.-based National Federation of Independent Business says that the stimulus plan – as it stands now – fails to address small business owners' most pressing needs. He had hoped for a six-month payroll tax holiday for employers. "That would really help to reduce the cost of labor," he says.

Direct breaks for hiring new workers were among various stimulus proposals that did not make their way into either plan. More hiring incentives would have markedly benefited small business in particular because, according to the SBA, small businesses have generated between 60 and 80 percent of the new jobs created each year over the past decade.

The stimulus should spur job creation though – if indirectly – through the funding of projects, especially those related to infrastructure and public works. For instance, legislators are allocating tens of billions of dollars to transportation projects, including highway, bridge, and mass transit construction and repair.

"A portion of those capital expenditures will be profitable for small business," says Giovanni Coratolo, director of small business policy for the U.S. Chamber of Commerce. But he's still unconvinced that the stimulus includes enough of these measures to make a real difference for most business owners. "It has certain aspects that will be helpful, but it's not a full course dinner," he says.

If anything, for workers like Bob Lanham, vice president of Williams Brothers Construction in Houston, Texas, speculative chatter about the stimulus has already inspired some optimism. "There are some of us that are hoping that if this comes through," he says, "it might turn 2009 from a bad year into an at least salvageable one."

Whatever targeted tax breaks make it into the final bill may not be enough to revitalize those small businesses that have been particularly hard hit by the recession. But supporters hope that provisions ranging from food stamps to tax breaks for individuals will get money back into the hands of consumers. If they, in turn, pump that cash back into businesses, both large and small, it just might get the wheels of commerce spinning once again.

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