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Congress Set to Approve Boost to Small Businesses

Thursday, 23 Sep 2010 06:52 AM

 

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The U.S. Congress is poised to give final approval to legislation aimed at boosting lending to small businesses in what is likely the Democrats’ final jobs bill before the Nov. 2 elections.

The House is slated to vote today on a measure offering a mix of tax cuts, loans and revived stimulus provisions aimed at easing the flow of credit and signaling voters, who head to the polls in six weeks, that Democrats are trying to boost the economy. Passage would send the bill, which was approved by the Senate last week, to President Barack Obama for his signature.

Economist Alan Blinder, a former Federal Reserve vice chairman, said many small businesses have had “extreme” difficulty getting loans though he said poor sales remain their biggest problem.

“They always have a hard time getting credit and given the state of the markets, they’re having an even harder time now,” Blinder said in an interview. “This ought to be helpful on that score, but if the economy grows at one and a half percent, we’re spitting in the wind because there’s no demand.”

“The thing that drives small businesses over and above everything else is the ability to sell their product,” he said.

The bill had been held up for months by Senate Republicans who objected to provisions setting up a $30 billion program in which the Treasury Department would buy preferred shares in community banks, with participants paying the government dividends on a sliding scale depending on how much they increase lending. Dividends could be as low as 1 percent. Republicans said the plan amounted to little more than a scaled-down facsimile of the Troubled Asset Relief Program.

Banks Reluctant

For all the controversy over the provisions, it’s far from certain banks will participate in the program, said Mark Zandi, chief economist for Moody’s Analytics. Banks will probably be reluctant to take the government’s money, he said, after seeing TARP recipients hit with retroactive executive-compensation limits amid a public outcry over tax dollars going to institutions paying million-dollar salaries.

“I’m skeptical that banks will actually take the government up on their offer,” said Zandi. “I think the memory of TARP will be in the minds of those lending institutions and they’ll be reluctant to use the capital.”

Lawmakers have attempted to allay those concerns by including a stipulation that would let participants drop out of the program “without impediment” if the government makes changes to the rules that would have a “materially adverse” impact on them.

Small Business Loans

The bill would also revive stimulus provisions cutting fees and increasing limits on loan guarantees offered by the Small Business Administration. Agency statistics show that volume fell by more than 50 percent after loan guarantees expired and funding to cover fee waivers ran out in May.

The bill would reinstate through the rest of this year provisions increasing to 90 percent the share of loans the agency insures and waiving fees that can total more than $56,000 on a $2 million loan.

“That’s probably the most potent aspect of the legislation in the near term,” Zandi said.

Other provisions would provide $56 billion in tax cuts over the next 12 months, with the bulk coming through “bonus depreciation” that allows companies to more quickly write off the cost of purchases. The tax cut would amount to $12 billion over 10 years, the yardstick used by Congress to determine how much bills cost, in part because businesses taking bigger deductions now couldn’t claim them in the future, which would increase projected tax revenue in subsequent years.

Fourth Jobs Bill

The bill would be the fourth major jobs measure to clear Congress this year. Previous legislation offered a payroll tax credit for new hires, aid to state governments to prevent layoffs and extended unemployment benefits.

The administration has called for additional measures, including a permanent extension of a tax credit subsidizing corporate research and development programs.

Senate Majority Leader Harry Reid has unveiled separate legislation offering companies a payroll tax credit for each position they create in the U.S. that replaces a worker abroad. Neither is likely to clear Congress before lawmakers adjourn, probably next week, for the midterm election.

The bill is H.R. 5297.

--Editors: Bob Drummond, Robin Meszoly

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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