To further Ephor Group’s commitment and mission to be a: “Small Business Advocate,” Garry Meier joined nine (9) other notable small business leaders in Washington DC the week of 2/9/09 to offer input on how-to best stimulate and support small businesses in the American Recovery and Investment Act of 2009.
Garry, having been instrumental in the development of many notable business success stories, and a known creator of jobs (EdwardJones, Technology Service Solutions and Outsource International for example) over his 34+ year career, feels strongly that small businesses have not received their ratably portion of assistance in this “Spending Bill ”.
While there are more than 25 million small businesses, which account for half of our GDP and by the way recover faster than corporations, small businesses create nearly 70 percent of the net new jobs (also small business is 13X more innovative per employee according to SBA studies).
Despite their importance to the economy, small businesses are heavily burdened by the costs of government regulation and excessive paperwork. For example, advocacy research shows that small businesses annually spend 45 percent more per employee than larger firms do to comply with federal regulations.
Below we have outlined a few highlights of the small business stimulus items from President Obama’s American Recovery and Investment Act of 2009:
- 1. $720 million to help support a number of programs at the U.S. Small Business Administration
- Primarily reducing fees on 7(a) guaranteed loan guarantees - i.e. if you have a SBA loan or need an SBA loan for $35,000 the fees are less and banks have been given incentives to loan these type of deals and amounts
- Additional funds for SBIC programs (detailed below)
- $400 million in support for economic development and entrepreneurship, particularly in distressed rural, urban, and low-income communities.
- Tax incentives for small businesses, including a continuation of section 179 expensing up to $250,000 on new capital investments in the year spent (i.e. buy an office or real estate and expense the full amount in year one if you want).
- Extend the loss carry back for up to five years.
- Reduce the capital gains tax for small business investors holding stock for five years or more.
What are Small Business Investment Companies (SBICs)? SBICs operate under the SBA (Small Business Administration) with the intent to stimulate the flow of equity capital and long-term debt instruments to small businesses .
How do SBICs work?
In 1958 Congress created The Small Business Investment Company (SBIC) program. SBICs, licensed by the Small Business Administration, are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With their own capital and with funds borrowed at favorable rates through the Federal Government, SBICs provide venture capital to small independent businesses, both new and already established. Small businesses which qualify for assistance from the SBIC program are able to receive equity capital, long-term loans, and expert management assistance. Venture capitalists participating in the SBIC program can supplement their own private investment capital with funds borrowed at favorable rates through the federal government. The cost of money on SBIC loans and debt securities charged to small concerns is regulated by the SBA, and is governed by applicable state regulations, or by SBA regulations, whichever is lower.
In what companies may SBICs invest?
The SBIC Program defines "small” as a net worth less than $18.0 million and an average after tax net income for the prior two years less than $6.0 million. Further, SBICs are prohibited from investing in finance projects such as real estate and motion pictures.
What is typically the purpose of SBICs capital?
Over 90% of SBIC financing typically goes to operating capital (~50%) and acquisition capital (~40%). Other uses of investment capital include plant modernization, refinancing, new building construction, purchase of new equipment and machinery, land acquisition, marketing activities and research and development. Request a Management Assessment Questionnaire from the SBIC Program Development Office at the e-mail address: [email protected].
As credit markets have tightened and debt instruments have tightened up, small businesses have become strapped for capital and must reduce expenses forcing poor small business loans to pile up on balance sheets, which the banks use to invoke even tighter credit standards. It’s a perpetual cycle that will be broken only by creating long-term operating improvement.
Additional sources and links :
- How the Money is Being Spent
- The Original Obama Small Business Rescue Plan
- Links to SBICs by state (currently about 400 SBICs)
Ephor Group and Garry Meier strongly suggest that you contact your local Congressional Representative to insure that the needs of Small Business are “heard loud and clear”. In addition please feel free to contact Ephor Group to evaluate if your organization can benefit via the recent legislation.
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