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I’ve been following this week’s press on the proposed tax plans for small businesses.  Two prongs of the plan to provide $35B in tax cuts for small businesses and workers were under fire in this morning’s edition of The Wall Street Journal: 1) increasing, for 2010 and 2011, the write-off for qualifying equipment to 100%–a two-year cut, and 2) making the tax credit for business-research expenses permanent.

Today’s articles highlighted some of the issues small businesses struggle with as they contemplate how these proposed cuts could help them lower the 9.6% unemployment rate the country is facing.  Assessing the net impact of any tax cut or increase is difficult at best, and consumer and business confidence is much of what helps to boost the economy.  Knowing that you won’t have to spend additional money on taxes, or that you might even spend less, can give you the confidence to project your revenues and expenses, and thus to assess growth opportunities and the hiring of additional employees.

As far as the proposed cuts go, businesses spending less than $800K on certain equipment can already write-off up to $250K, which means many small businesses are already taking advantage of this write-off.  It appears to be a two-year tax cut targeted at a very small number of businesses: those making over $800K in either manufacturing or an industry that must constantly re-invest in new equipment. While manufacturing as a whole comprises almost 12% of employment, it represents only 5% of all establishments, most of whom are large companies. 

If this write-off is an attempt to encourage spending through the purchase of new equipment (which could have a net positive, short-term impact), what is the reality of a small business having the funds to make such a purchase?  Investing in capital equipment requires a cash investment no matter how quickly it can be written off.  Most small businesses simply don’t have access to the cash required for these purchases, and, even if they do, most are already with the qualifying $250K limit.  Is a tax credit with a two-year limit really just a quick shot of adrenaline versus a boost that will provide a long-lasting impact to the majority of small businesses, the fabric of our economy?

Making the credit for research expenses permanent is a longer-term fix, but it requires the ability to see ahead and invest in the future in a time when many small businesses are struggling to make it from one day to the next. 

What would you propose?  What tax relief would help you expand your business and help reduce the unemployment rate?

WSJ: Obama Tax Plan Holds Less for Small Business

Parties Spar Over Small-Business Proposal

Kelli Spencer is a product marketing professional.  Ftrans combines professional receivables services with fast and affordable access to funding – providing small and medium businesses the cash they need to grow and take advantage of market opportunities.  Liberating you from funding challenges and receivables hassles.

It’s not that banks don’t want to see a small business recovery.  In fact, they are indeed under political pressure to lend to SMBs and help build the recovery. 

Yet, Our research indicates that the community banks that typically serve SMBs  just aren’t structured to handle the the highly specialized risk assessments required to successfully underwrite C&I loans.  Nor are they staffed right now to properly manage the rigorous monitoring of these loans.

Dan Drechsel, Ftrans CEO, explains further. 

Next:  Banks say they aren’t lending because there is no demand.  Do you believe that?

The WSJ reports on this question almost daily now:  When will banks start lending to small businesses again?  Greenwich Associates partnered with Ftrans, surveying a host of community banks, to gain insight into the issue.  Dan Drechsel talks about the results of that study and his perspective on the outlook for bank lending to SMBs over the next 18 months.

Next up:  Will banks help SMBs recover?  Is there actually a demand from SMBs for financing?

There are certainly some very positive findings in the recent National Association for Business Economics (NABE)  survey, and this is welcome news.   The respondents indicated that their economic outlook has improved, profits have increased, and job creation has increased. 

However, this finding is troubling:

Nearly half of those surveyed said credit conditions were hurting their operations, compared with 35 percent in January.

Here’s my question: Why are MORE companies saying business credit conditions are hurting operations than in January while at the same time businesses are saying economic conditions are improving? 

I believe the short answer is that more businesses are in the position where they NEED business credit as the economy recovers (efficiency is at an all time  high– they need to hire; they are getting more orders, etc.).    Unfortunately, as our friends at Greenwich Associates have recently stated, banks are notorious for resuming normalized levels of lending on the back side of a recession.   Ftrans’ research indicates a 12 to 18 month horizon before business lending may normalize.   

Businesses that have survived phase I of the economic downturn and credit crisis now need to get creative to finance growth in an upturn.   Welcome to the Catch 22 of the continuing credit crisis. 

Connecting the dots:  Growing losses in community bank commercial real estate portfolios could jeopardize our overall recovery by stymieing lending to small business.   Community banks account for nearly 50 percent of loans to small businesses.  A recently published report from the Congressional Oversight Panel created to oversee the Treasury‟s $ 700 billion TARP bailout program highlights a serious threat to the economy from the weakening financial fundamentals in the commercial real estate sector. Similar to the recent collapse of the residential market, Elizabeth Warren, chair of the Panel stated “…there‟s been an enormous bubble in commercial real estate, and it has to come down.” 

The panel warned that of the approximately 8,100 U.S. banks, nearly 36% of them are small regional and community banks with problematic exposure to commercial real estate. Problematic in the sense that commercial real estate loans represent at least 300% of total capital or their construction and land loans exceeds 100% of total capital.

The Congressional Oversight Panel also warned that almost 3,000 small banks could be forced to curtail their lending because of growing losses in their commercial real estate portfolios. This reduction in lending can severely jeopardize the economic recovery as these banks account for nearly 50 percent of loans to small businesses.

Edgar Ortiz is President and CEO of Strategic Analytic Solutions, an Atlanta- based management consulting firm that provides Strategic Planning, Predictive Analytics and Credit Risk Management Advisory services to small and midsize businesses.  He can be reached at


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