Saying that "now is not the time for panic," Barack Obama took to the stage in Chillicothe, Ohio, today to announce what he described as a "Small Business Rescue Plan." "We won't grow government-- we'll work within the Small Business Administration to keep folks afloat, while providing tax cuts to lift the tide," Obama said. "It's what we did after 9/11, and we were able to get low-cost loans out to tens of thousands of small businesses."
A cynic might point out that the post-9/11 loan program approved by Congress was widely lambasted for offering loans to firms that, by outward appearances, at least, weren't directly affected by the terrorist attacks -- such as to tanning salons in Vegas, etc. In any event, these are the new initiatives Obama proposes (available here as a PDF):
'˘A new, emergency direct loan program. Fittingly, this "Nationwide Emergency Lending Facility," as the Obama campaign calls it, would be administered through the SBA's Disaster Loan Program. Most observers believe that the in the wake of Hurricane Katrina, the SBA failed to disburse disaster loans quickly to small businesses in the Gulf. Since then, the agency has revamped the program to generally good reviews, but because this disaster isn't localized like a hurricane, Obama's plan would pose different challenges for the agency. On the other hand, with general commercial lending apparently approaching a standstill, it's likely that local SBA staffers now have some time available to lend their expertise. That leads to the next point:
'˘Temporarily eliminate lender and borrower fees on SBA guaranteed loans and increase the guaranty. Over the years, loans under the SBA's flagship 7(a) and 504 programs have gotten more expensive because Washington eliminated the federal budget appropriation that covered some of the cost of defaults. With higher fees on both borrowers and banks, participation in both programs fell. (The 504 program, which lost its appropriation in the 1997s, eventually recovered. The Bush Administration struck the 7(a) program's line item in 2005, saving $100 million a year. In 2006, the Bush SBA attempted to shift the entire cost of administering the 7(a) loan program to its biggest borrowers, but Congress balked.) This move could conceivably reverse that -- if banks can be persuaded to lend money in the first place. Currently, the SBA's guaranty is 40 percent for 504 loans and up to 85 percent for 7(a) loans.
'˘Extend the generous small business deduction and expensing rules that were part of the 2008 stimulus through 2009. The Economic Stimulus Act of 2008 doubled the tax deduction available under Section 179 of the Internal Revenue Code for certain kinds of property to $250,000, and Obama would keep that rule in place through 2009. That's fine as far as it goes, but the stimulus also raised the limit on qualifying deductions from $500,000 to $800,000 (that is, only companies that spent under $800,000 on the kinds of expenses eligible for the deduction can take it in full), but Obama's thumbnail plan doesn't say whether he'd extend this higher qualification. Nor does it mention whether he would extend the bonus depreciation included in the stimulus. Incidentally, Republican John McCain has proposed allowing corporations to immediately expense all their three- and five-year equipment -- for the next five years.
Obama also came out fully in favor of rebuilding the SBA. Today's statement is the most expansive vision for the SBA from either candidate. (Previously, the most we'd heard from Obama about the SBA was that it's "sleepy".) Among other things, Obama pledges to:
'˘restore the SBA's budget, which in the Bush Administration was cut more drastically than any other federal agency;
'˘expand the network of SBA lenders and make interest rates on SBA-guaranteed loans "more competitive with the private sector;"
'˘make sure that federal small business contracts don't go to large firms and end fraud and contract bundling;
'˘Implement the federal contracting program for women-owned businesses that became law under the Clinton Administration but which the Bush Administration has fought;
'˘create a network of public-private business incubators.
When John McCain's top economic adviser was asked about the SBA at the Inc. 500 conference, he made no such promises.