Two autumns ago, Congress passed the Small Business Jobs Act of 2010, a bill stuffed with provisions intended to help small enterprises save on taxes, get bigger loans and qualify for those loans more easily. Can this legislation help your company grow and hire?
Many of its provisions have expired, including some that businesses salivated over and others that made their accountants reach for the Advil. But the act's most lasting impact is to permanently raise the ceiling on Small Business Administration loans.
By bumping that limit from $2 million to $5 million, and by standardizing the definition of "small business," the bill made possible capital investments that might otherwise be impossible in an era of tight credit.
The loans are intended for capital expansion, like land or equipment purchases, and sometimes for short-term capital expenses. They can free up a firm to take on priorities it otherwise could not afford, says Chuck Matthews, a specialist in entrepreneurship at the University of Cincinnati's business school
"In terms of workforce expansion, it gives entrepreneurs and small-business owners a tool to not just hire employees, but train employees," Matthews says.
The loans in question are 7(a) and 504 loans, the bread-and-butter loan programs from the Small Business Administration.
These government loans require a lot more paperwork than a standard bank loan and involve some heavy fees. However, the new, higher ceiling has unquestionably infused American small businesses with more cash. SBA made just over $17 million in loans in fiscal year 2010 and $24.5 million in 2011, compared to just $13.1 million in 2009.
These loans can foster growth and lead to a spike in hiring, for several kinds of business.
Slogging through the SBA's paperwork was no obstacle for Eric Blinderman, a New York City restaurateur who wanted to add a companion eatery to Mas (farmhouse), a French bistro he co-owns in Greenwich Village. With $3.1 million in SBA loans, he built the second restaurant this year and hired 65 people. Best of all, he owns the building, and because Uncle Sam required him to put down just 10 percent of his own money, he was able to start the new enterprise without any outside investors.
"Restaurants are high-risk," Blinderman says. "Without the SBA loans, we would never have been able to get that kind of money."
The story of LaserCraze, a laser tag center in the Boston suburbs, demonstrates how SBA loans can assist retail establishments. Owner Greg Hughes got a 504 loan worth $1 million and used it to build a second facility, prompting the hiring of 40 more workers and managers. Without the SBA, he would have had a hard time persuading a bank to make the loan.
"I don't have a million dollars of anything that a bank can sell to get its money back," Hughes says.
Manufacturing enterprises have also found the loans useful. Taphandles is a Seattle company that makes beer paraphernalia, mostly in China. But in 2010 it got a $3.5 million SBA loan and used it to bring manufacturing onshore, opening a factory in Chicago that will employ 70 people when it is built. They are specialized technical jobs that will pay $9 to $16 an hour.
Thanks to the SBJA, Taphandles' loan included none of the usual fees on an SBA loan—a benefit that saved the company $30,000 and allowed the company to turn around and create a second factory in Woodinville, Washington.
If freedom from federal loan fees sounds tantalizing, dream on—that part of the law and many others expired at the end of 2010. Some of those other provisions were not so popular.
The bill offered a tax break for companies that made new hires made in 2010, but many businesses that applied found that it was hardly worth the trouble.
"We kept trying and then at the end we couldn't even find someone to help us figure out how to use it," says Gillian Christie, founder of Christie Communications, a public relations firm in Santa Barbara, California. "It almost became more onerous than it became beneficial. Am I going to pay my bookkeeper $50 an hour to save $500?"
Still, if a company is considering growing in this distressed economy or is having difficulty obtaining a loan, the SBA's expanded loan program offers a potential lifeline.
David Ferris is a freelance writer based in the Washington, D.C., area. To comment, email firstname.lastname@example.org.