Posted: October 1, 2010

By Philip Newswanger

philip.newswanger@insidebiz.com

Small businesses are encountering rough seas.

The cause is traced to tight credit and tougher lending standards exacerbated by reluctant buyers.

President Obama's Small Business Jobs and Credit Act of 2010 seeks to change that by funneling $30 billion through community banks that cater to small businesses.

The law also offers $12 billion in tax breaks for capital improvements.

Another section of the law expands the Small Business Administration's 504 loan program, which provides capital to small businesses to buy, construct or renovate commercial real estate.

The loans also provide capital for the purchase of equipment and machinery.

A summary of the legislation can be found at www.vdba.virginia.gov.

"I really don't have a problem with the legislation other than it should have been enacted two years ago," said Larry Filer, director of Old Dominion University's MBA program. "As with most legislation, by the time it clears all the hurdles and becomes law, the need for the legislation has diminished. This bill basically contains two types of help. One is improving credit access and the other is made up of tax incentives for growth.

"The need to help small firms on credit access seems to be diminishing quickly," he said.

The most recent Senior Loan Officer Survey done by the Federal Reserve Board of Governors showed that credit was increasing dramatically for commercial and industrial loans, Filer said.

"Most importantly, the survey showed the first evidence since the crisis that credit has eased for small firms and the prices small firms are paying for credit have decreased dramatically," he said.

If that trend continues, he said, the legislation is likely to have little additional effect.

"In fact, in the survey it was small firm demand for business loans that is still weak, yet improving.

"My feeling is that the tax incentives contained in the bill will likely be a more important stimulus going forward than the easing of credit," Filer said.

Jim Carroll said small businesses are concerned about the costs of health care reform and taxes, as well as tight credit and tougher loan standards.

Carroll is director of the Small Business Development Center of Hampton Roads, which advises small businesses and budding entrepreneurs on issues such as marketing and financing.

"Small businesses are paying through the nose," Carroll said.

He said his organization and others nationwide will receive funding from the legislation, though he is not sure of the amount.

The funding is a one-time injection and is not subject to a match from the states or localities.

"Overall I think it's a positive step but there are some financial institutions that are not enamored with it because it's more restrictive on the banking side," said Ira Agricola, vice president of the Hampton Roads Chamber of Commerce. "In fairness, all regulation has been tightened over the past couple of years."

Agricola said that most everyone in the small business community would view the legislation as a positive.

"The biggest challenge in the market is access to capital," he said. "That's why tax credits are important because most small businesses are S-corporations and tied to the owner."

S-corporations are corporations that elect to pass corporate income and losses on to shareholders for federal tax purposes, according to information on the Internal Revenue Service website. The shareholders then report the income and losses on their personal tax returns.

"We're trying to be politically agnostic," said Terry Kelly, spokesman for Independentwestand.org, a nonprofit organization comprised of independent businesses.

The group was started three weeks ago in Hampton Roads to promote independent businesses and encourage consumers to buy from local stores, said Kelly, who is with advertising and public relations firm The Meridian Group.

Its main sponsor is Stihl Inc., which Meridian represents.

"Our stance is that whatever independent businesses need to do," Kelly said, reinforcing his group's mission. "They need the support of the American public to buy their products."nib