Business Broker Blog

Is SBA Lending on the Rise?

  

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Yesterday the Senate passed the Small Business Bill, which is good news for our industry (and hopefully the economy in general). The bill includes a lot of stuff and as with most of the bills passed by our illustrious Congress I don’t claim to understand everything that it entails. However, there are some items that are worth commenting on as they directly impact the Business Sales & Acquisitions marketplace. According to today’s WSJ, the bill contains:
• A 100% exclusion from capital gains taxes for those who invest in small business. (I am interested to see how this will work, including how one defines “investor”. I wish this was a capital gains exclusion for those business owners who pay a lot of capital gains tax when they sell their company because their basis is zero or close to zero, but I don’t think it is. Blood and sweat apparently don’t count towards your tax basis. This is probably something to spur more Angel investment, which is also a good thing but not as good as my wish above.)
• A provision allowing firms to immediately write off 50% of the cost of new equipment.
• A doubling of the tax deduction for start-up expenses to $100,000. (A good thing for those looking to buy a franchise…)

The bill also contained provisions to spur more lending to small businesses including a $30 billion fund known derisively as “TARP Junior”. Whether this will actually spur lending or not I don’t know. It seems that the devil is always in the details of these Congressional boondoggles. (Has anyone heard of the provision in the health care bill requiring small businesses to provide vendors a 1099 form if they spend more than $600 a year with that vendor? Can anyone tell me what that has to do with health care?)

Many small businesses are bought and sold with the assistance of the SBA 7a Loan Program. The SBA guarantees a portion of the loans enabling banks to take a risk they wouldn’t ordinarily take because of what is usually a significant collateral shortfall. According to SBA loan experts Diamond Financial, this bill has increased these loan guarantees to 90%, raised the amount a borrower can borrow from $2 million to $5 million, and waived the upfront fee borrowers used to have to pay to get the loan (which was usually a few thousand dollars.) We at Murphy are hopeful that this will indeed kickstart lending and make it easier for more transactions to close.

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