Small Business Jobs Act of 2010 Creates New $30 Billion Small Business Lending Fund for Community Banks

November 8, 2010

The Small Business Jobs Act of 2010 was recently passed by Congress and signed into law by President Obama. The Act created a new $30 billion Small Business Lending Fund for community banks to lend to small businesses, and enacted a number of tax incentives for small and large businesses in an effort to spur more job growth.

Here are some of the highlights of the new law:

  • The Act creates a new $30 Billion Small Business Lending Fund to be administered by the Treasury Department to provide capital to community banks with incentives to step up their lending to small businesses. Banks with $10 billion in assets or less (referred to in the press and many other circles for ease of reference as “community banks”) are eligible for the program. The funds will cover purchases of preferred stock or other financial instruments from eligible community banks. The bank is required to submit a small business lending plan at the time of application to the program. If community banks make more loans to small businesses, they will get an interest rate cut on money borrowed from the fund. The Act provides that SBLF capital is intended to be treated as Tier 1 capital by the community banks. Banks taking SBLF capital will not be subject to restrictions on dividends, compensation and other similar restrictions that applied to the TARP program. Banks on the FDIC problem bank list are ineligible to receive a capital investment under the SBLF program. Small business loans of $10 million or less to businesses with revenues of no more than $50 million will be counted under the program.
  • The Act also creates a State Small Business Credit Initiative providing $1.5 billion in grants to states to support new or existing state small business lending programs. The federal initiative will require that state programs demonstrate that the new federal funds, together with the leveraging of private investment credit, will result in amounts of new small business lending at least 10 times the new federal funds. The federal backing is intended to strengthen current state programs that have suffered cutbacks due to state budget woes.
  • The new law extends the SBA Recovery Loan Program through December 31, 2010. There is $505 million earmarked for recovery loans, which will support about $14 billion in overall small business lending.
  • Small Business Administration (SBA) lending is also expanded. The Act permanently increases the guarantee level of SBA 7(a) loans from 75 percent to 90 percent, increases the SBA 7(a) and SBA 504 loan limits from $2 million to $5 million, increases the SBA 504 manufacturing loan limits from $4 million to $5.5 million and increases the SBA microloan limits from $35,000 to $50,000. The Act also provides a temporary increase in the maximum loan size for SBA Express loans from $350,000 to $1 million.

The Small Business Jobs Act of 2010 also contains the following new, extended or expanded tax cuts for small business:

  • Temporarily eliminates Capital Gains taxes for investments in small businesses made through end of 2010 if held for five years.
  • Increases the expense limit for small businesses to $500,000, while raising the level of investments at which the write-off phases out to $2 million.
  • Extends the 50 percent “bonus depreciation” through 2010, intended to spur business investment with the knowledge they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
  • New deductions for health insurance costs for self-employed taxpayers.
  • New and simplified deductions for employer-provided cell phones.
  • Temporary increases in deductions for start-up expenditures from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures).
  • Certain small businesses gain the ability to “carry back” their general business credits to offset five years of taxes and allowing these credits to offset the Alternative Minimum Tax.
  • Changes the penalty for failing to report certain tax transactions from a fixed dollar amount (criticized for imposing a disproportionately large penalty on small businesses) to a percentage of the tax benefits from the transaction.

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