New Law A Sign of Hope for Small Business

Owners of privately-held businesses are an independent group, accustomed to taking care of themselves and their businesses.  But, in the wake of the financial crisis of 2008, many businesses are without the credit that they need to advance forward.  After months of debate, and after a Senate holdout on the Small Business Jobs Bill, on September 27^th, 2010 President Obama signed into law a $42 billion bill aimed at helping small businesses and, in turn, hopefully spurring the economy.

This new law includes tax breaks as well as government-backed loans, all targeted at small business. President Obama commented on the passage; ‘"It's going to make a difference in millions of small business owners across the country who are going to benefit from tax breaks and additional lending so companies have the capital to grow and hire".

If the clouds of this severe recession have any silver linings, they may simply be the focus that is now being afforded the small business segment of this country, the very same sector that is responsible for providing 65% of all new jobs in the US. Providing these new jobs, however, is something that can’t be done if the capital to fund the jobs or the capital to grow businesses is not available.  Case in point, the number of loans to small business has dropped by 17.8% since the second quarter of 2008 and in that time new jobs from small business have also been shrinking*. According to a Senate summary, the measures in the newly passed bill are expected to create 500,000 jobs in the US.

Let’s take a look at the highlights of this new law and ask the important question of how this can positively impact your exit.  The law includes:

·       The Small Business Jobs Act authorizes the creation of a $30 billion fund run by the Treasury Department that would deliver capital to banks with less than $10 billion in assets. The idea is that community banks do the lion's share of lending to small businesses, and pumping capital into them will get money in the hands of Main Street businesses.**

·       $1.5 billion in grants to state lending programs that in turn support loans to small business. 

·       Extension of the popular ‘loan sweeteners’, such as reduced fees and increased guarantees for banks, for Small Business Administration loans through the end of the year. The sweeteners, initiated with the 2009 Recovery Act, have been a stimulus success story and small businesses have been in line waiting for more funding.

·       The bill will also provide tax breaks to encourage investment at a cost of $12 billion over the course of a decade. The tax breaks increase the amount that a small business can expense for capital expenditures; encourage investors by allowing complete exclusion from capital gains taxes on small business investments; and increase the deduction for startup expenses, among a slew of other incentives.

So what does this all mean to small business owners?  And, what can this new law mean for your plans for an exit from your business?  Well for those who were forced to postpone their exit due to the economic downturn, this act may help them turn around their business in preparation for that exit. Most importantly, business owners need to understand that it is vital, especially in the current economic environment, that they develop their exit strategy well before they actually need to implement one.  The primary reason that this planning is vital is because now, more than ever, there are large gaps in the difference between the value of a business and what an owner needs in order to exit and afford their post-exit lifestyle. 

This ‘Value Gap’ is a large issue in the marketplace today.  Larger still is the mindset of the average business owner towards not addressing this issue head on.  The new law providing capital and tax incentives to small businesses should be a catalyst to begin to see that profitability will return and, when it does, will you be in a position to exit on your terms?

The advanced planning incorporated in an exit plan will help ensure that you understand all of your exit options as well as how each business decision that you make today will impact the direction that you take your exit. In addition, knowing the ultimate direction of the company will help with strategic decisions years before the actual exit.

Many small business owners have been challenged during this recession and are looking for glimmers of hope, such as the recently passed law, to help their businesses grow to the point where they can make a successful exit. The most successful small business owners will be the ones who take the opportunity to plan now for their exit and to drive their business in that very direction.

*New York Times, September 16, 2010, David Herszenhorm

**CNN Money.com, September 16, 2010, Catherine Clifford