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$30 billion set aside for bank lending; incentives target business investment

NORTH BAY – The passage of HR 5297, the Small Business Jobs Act, established in the Treasury the Small Business Lending Fund of $30 billion and $12 billion in tax incentives intended to spur lending and get small businesses back on their feet.

[caption id="attachment_25957" align="alignright" width="108" caption="Kim Kaselionis"][/caption]

For North Bay banks, there is still uncertainty as to how the $30 billion will be distributed, but, said Kim Kaselionis, president and chief executive officer of Circle Bank, the industry expects there will be a weighted system to determine how much capital each bank could get.

In addition to the $30 billion in capital, which can be leveraged to $300 billion in loans, there is a continuation of the enhancements to SBA lending, such as fee waivers and increased guarantees.

“I think with the combination of SBA provisions and the $30 billion it should be a good injection to small business owners,” said Ms. Kaselionis.

Tom Duryea, president and CEO of Summit State Bank said, “The passing of HR 5297 is a great win for local community banks. Although Summit State Bank has continued to dependably lend to local businesses and nonprofits, any additional programs, like the SBA 7(a) loan program, will only make our local economy stronger.”

He said his sense of this SBA lending is that it is making it easier.

“You have increased the maximum loan size, which is big. It is encouraging because a lot of banks cannot take any more risk. It encourages banks to do more loans,” he said.

Russell Colombo, president and chief executive officer of Bank of Marin, was not quite as optimistic about the benefits of this legislation.

“While we are a business bank and we are clearly in favor of things that help the small business community, and I believe that economic recovery is led by small business and I applaud legislation and efforts to help invest in the future and their business, in the case of this legislation, I think they are just creating TARP 2,” he said.

He said he thinks the efforts are misdirected and there is already plenty of capital, but there is no demand.

“It is not a lack of supply of money to lend, it is a lack of demand from borrowers,” he said.

He feels that reducing the tax burden of small businesses would be a more suitable effort by the government. He also pointed out that just because the banks have more capital doesn’t mean the banks will lend.

Ms. Kaselionis said while there are similarities to TARP, which Circle Bank didn’t participate in, that is not necessarily a bad thing.

Also, different from the TARP, she said, the $30 billion program reduces a bank’s interest rate as it lends the money, although the rules have not yet been established.

“This is a very good incentive for banks to lend out the money,” she said. “You are driving down the borrowing costs by lending to small businesses."

On the tax side of the bill, there are a number of incentives put into place to help small business owners.

“The two biggest items are the extension of bonus depreciation and the extension and expansion of section 179 expensing,” said Chris Paris, senior manager at Moss Adams in Santa Rosa.

The bonus depreciation allows a small business that acquires assets it uses in the business and makes tenant improvements to write off half in the first year then depreciate from there.

It was there in 2008 and 2009 and then it was slated to go away, he said.

“I have a number of clients who will take advantage of it. We have clients moving forward with equipment purchasing as well,” he said.

Linda Lampson, a director with Zainer Rinehart Clarke in Santa Rosa specializing in estates and trusts, said, “We think bonus depreciation is fabulous.”

She pointed out that it is federal only so it doesn’t apply for California.

For section 179, when a business buys certain types of assets, it can write off the entire cost in the first year, said Mr. Paris.

“What they have done is they have increased the deduction from $250,000 to $500,000 so you can expense up to $500,000 of asset purchases in the first year.”

Rich Gunn, CPA and corporate tax partner with Burr Pilger Mayer, said that while both the bonus depreciation and section 179 expansions are good things, this is simply a continuation of the yearly changes in tax law. He said when working on a client’s returns, he can be looking at three different years and have three sets of rules for the same issue.

“It makes tax planning difficult when things change every year,” he said. “Also, the fact that this legislation comes in the fourth quarter doesn’t help a lot of people as much as it would if they let us know about this in the first quarter.”

He said the increase to $500,000 will not make much of a difference to the smaller businesses because they would never even have come close to the $250,000.

“When you think of small businesses it is just overkill,” he said. “I think this is the federal government’s way to expand the definition of small business.”

Mr. Gunn said a piece of the legislation he thinks will be helpful allows people to roll traditional 401(k) assets into a Roth-type account, the same that has been granted for IRAs.

The planning challenge in such a rollover conversion to a designated Roth account is that the converted balance is considered taxable income at the time of conversion.

If an amount is rolled over in 2010, however, the new law helps ease that tax liability by treating the taxable converted amount as included ratably in income in equal amounts for 2011 and 2012 unless the taxpayer elects otherwise.

Another piece to the legislation that Ms. Lampson pointed to pertains to people who are self-employed.

Self-employed individuals may claim a deduction for qualified health insurance costs for income tax purposes.

The new law allows the deduction for the cost of health insurance in calculating net earnings from self-employment for purposes of self-employment taxes.

Additionally there are business tax credits that can be carried back five years. These are credits that a business has not been able to use because the business was not bringing in money.

“The companies it will be significant for are research and development companies, tech, manufacturers that have not been able to develop new products in the past few years,” said Mr. Paris.

The general credits will also be able to be used to wipe out the costs of the alternative minimum tax.