Small Businesses Get Short End of Stimulus Stick

Washington Matters

Small Businesses Get Short End of Stimulus Stick

What did small business get out of the stimulus?  Not much. Democrats and Republicans alike are always free with praise, stressing the importance small businesses play in the economy. They got that right -- firms with fewer than 20 employees are responsible for more than 50 percent of new jobs.  But when push came to shove in the final days of negotiations, help for small business was all but obliterated.

In the early days of campaign talk and bill drafting, small business did pretty well. Candidate Obama talked of eliminating all capital gains for small businesses and ending the diversion of federal small business contracts to corporate giants. Early versions of the bill included $600 million to waive or eliminate government loan fees and a 50% boost to $3 million in the cap on government-backed 7(a) loans.

But when Republicans demanded cuts to keep the bill's size below $800 billion and Democrats fought for their favored programs, the ax fell on small entrepreneurs. The $600 million was cut to $375 million. The higher loan cap disappeared, as did any action on closing loopholes in federal small business contracting. There is a cut in capital gains taxes -- with 75% of gains on investments held over five years excluded, up from 50%, but that's still shy of Obama's promise to eliminate all capital gains taxes on investments in small business.

There is some other help for smalls. The extra money for the Small Business Administration will mean lower fees, more incentive for banks to lend and $6 million for new microloans. Small firms suffering financial hardship that have trouble paying existing non-SBA loans will have access to bridge loans, fully guaranteed by the SBA. Refinancing opportunities, too, for small businesses with loans to pay.

It's better than nothing, but not even close to what small firms were hoping for.