In Part I of "The Impact on Small Businesses of the Jobs Act" EisnerAmper's Tim Speiss addresses the tax breaks and key provisions of the The Small Business Jobs and Credit Act of 2010.See "The Impact on Small Businesses of the Jobs Act: Part I."
In Part II, Speiss, writes about the economic impact of the Act on small businesses.
On September 23, in a 226-186 vote, the House approved a $42 billion bill to provide aid to small businesses. The legislation includes $12 billion in tax breaks and would create a $30 billion facility to expand credit access to small businesses.
The economic impact
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Small-business lending fell from $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to Federal Reserve Chairman Ben Bernanke. What is unknown is what caused the decline in lending. Was it because credit was hard to come by, or because demand for small-business loans was just weak?
One community bank CEO testifying before the Senate Committee on Small Business and Entrepreneurship said the bill will expand small-business lending by $300 billion and will reach more than 8,000 community banks. But this may not pump up small businesses' bottom lines. Banks’ unhealthy balance sheets may restrain the supply of credit, and weak consumer demand may reduce the demand for small-business loans.
The tax provisions in the bill, while putting some capital back into the hands of small-business owners, are modest and may be insufficient to overcome businesses’ anxiety about the weak economy.
Some conservatives have labeled the $30 billion loan fund as the successor to the TARP bailouts, saying that the bill is simply a backdoor way for community banks to get rescue funds like their big brothers on Wall Street. Like larger equity stakes made in Wall Street banks by the TARP legislation, the equity stake by the Treasury may fail to induce small-business lending. This is especially true for severely undercapitalized institutions.
Many community banks are still undercapitalized. In the second quarter of 2010, 45 FDIC-insured banks failed and the number of “problem banks” rose from 775 to a recent peak of 829. Although “problem banks” are excluded from the bill’s loan fund, many small banks face similar risks. Unfortunately, undercapitalized institutions that need the Treasury’s help the most will be in the worst position to extend credit to small businesses.
For the largest community banks (those with assets greater than $1 billion and less than $10 billion) the stake cannot exceed 3% of risk-weighted assets, a relatively small infusion when compared to potential losses on commercial real estate loans and other assets. Compared to the stake the