What's in this bailout for my small business?

John W. Schoen Senior producer • Profile • E-mail

With the government committing hundreds of billions of dollars to help get the economy moving again, small business owners are wondering: Is there anything in this bailout that's going to help me?

The answer, according to small business advocates, is not enough.

Can my small business get in on the bailout? If so, how?
— Allari, Tempe, Ariz.

If you mean: “Is the government handing out cash to small businesses the way it’s showering money on the banking industry?” the answer is no. To get any of the $700 billion Congress has approved so far for the Troubled Asset Relief program, you pretty much have to be a bank that’s in deep trouble because it made loans to people who couldn’t pay them back.

You also have to be “too big to fail” — which rules out help for the roughly 12 million companies with less than 500 employees (according to 2006 Census data, the latest available). Collectively, these companies employ more than 70 million people — or about half the total U.S. workforce.

But Congress is considering some measures that could help small businesses as part of an $819 billion stimulus package that has been approved by the House and is now before the Senate. According to small business groups, the measures are mostly too small and indirect.

“If they’re looking for a bailout, there’s not anything in here for them,” said Todd McCracken, president of the National Small Business Association.

There is some indirect help — mostly through changes in the tax code. One provision would let small business owners write off the cost of buying new equipment right away instead of deducting it gradually as the value depreciates over several years. But that won’t help companies that can’t afford to buy more equipment as their business dries up.

The measure also includes a “tax loss carryback.” That means that if your small business had a profit in, say, 2005 or 2006, and you’re now losing money, you can use that loss to offset profits in past years — and get back the taxes you paid on those profits.

If you’re one of those small businesses whose credit has recently been cut off by a bank, the bill has a provision designed to help you get a loan. The package includes close to $500 million in additional funding for loans guaranteed by the Small Business Administration.

The minimum guarantees would be increased from 60 percent of the loan to 95 percent, which eliminates much of the bank’s risk. The plan also would eliminate fees charged to both lender and borrowers to cover the cost of loans that go bad.

Unfortunately, these measures probably won’t be enough to restart small business lending, because banks are still having a hard time selling off existing small business loans in the secondary market, which would free up cash to make more loans, said McCracken.

"We’ve been arguing that the government should buy those loans," he said.

The Federal Reserve said last week it is “prepared” to buy those loans, but so far it hasn’t moved ahead with that plan, he said.

Small businesses may get some help from planned massive spending on infrastructure and other public projects, but they’re going to have a hard time outbidding larger firms that can price more aggressively, according to William Rys, tax counsel at the National Federation of Independent Businesses.

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