Update on the American Recovery and Reinvestment Act: Help for Small Businesses

On Monday, Sen. Tom Harkin and Gov. Chet Culver hosted a community event at the Dallas Center - Grimes High School that offered participants insights into the details (as they are known) of the American Recovery and Reinvestment Act of 2009 (Recovery Act).

A panel for small businesses and workforce issues presented some very useful information and a few members of the The New Iowa Entrepreneurs’ Coalition were there to take notes. We were told that videocast of the event would be available but I have not found it yet.

Click on the title of the next section for a podcast from the SBA.

Here's a summary of the American Recovery and Reinvestment Act's programs specifically targeted to small businesses (as defined by the SBA) and the banks that lend to them.

We've all read about the bail outs for big banks and big businesses over the last several months. Now, the current administration has launched a series of programs specifically targeted to small businesses (as defined by the SBA) and the banks that lend to them.

The goal of the program, part of the American Recovery and Reinvestment Act, is to provide entrepreneurs and lenders some financial relief from the current economic crisis that will help encourage borrowing and lending to all small business, including start-ups. It also provides a new program to help businesses that are struggling to make payments on an existing loan.

This loan program, called the America's Recovery Capital (ARC) will soon offer deferred-payment loans of up to $35,000 backed 100 percent by SBA to viable small businesses that need help making payments on an existing, qualifying loan for up to six months. (Note: the existing loan does not have to be a SBA loan to qualify.) Repayment does not begin until 12 months after the loan is fully disbursed and will be for the principal amount only. (ARC loans cannot be made to cover payments on an existing loan that was guaranteed by SBA before February 17, 2009, the day the bill was signed into law.)

As of this writing, the final details on the ARC were still being worked out and the loans were not yet available. Check with your local bank or SBA Website to find out when these loans will be available.

The other part of the program involves up to $15 billion from the Treasury Department to unlock the secondary markets for small business loans. The secondary markets for 7(a) and first lien 504 securities has ground to a virtual halt over the last year. That, in turn, has made banks less willing to make the loans as they depend on these secondary markets to buy up their existing loans, thereby gaining liquidity for future lending. The government has now announced that the government will stand ready to purchase 7(a) and 504 first-lien securities. The goal is to encourage banks to make loans as they now have a ready buyer in the form of the Treasury Department committed to buy those loans from the bank once they are made.

In addition, to the above programs, the Act also includes temporary elimination of 7(a) and 504 loan fees. Fees for a 7(a) loan are based only on the guaranteed portion of the loan and depend on the size of the loan. Fees range from 2% to 3.75%. Fees for 504 loans generally run about 1.5% for the application fee. This, along with the fee to the mortgage lender, will be waived.

Also under "discussion" is the allowance for allowing some use of 504 funds restructuring of existing debt that was previously used to acquire fixed assets. Further guidance regarding this provision is expected to be released soon.

The SBA formally guaranteed participating banks 75-85% of their portion of 7a loan funds. They have now raised this guarantee to 90%, again in an attempt to decrease the risk to a participating bank and encourage lending to small businesses. This increased guarantee and loan fee waivers are good through the end of 2009 or until the designated funds for them are exhausted.

The Recovery Act includes other initiatives to help business owners with under $15 million in gross receipts, including targeted tax relief. If you experienced a loss in 2008, you can "carryback" this loss for up to the previous five years to receive a tax refund for taxes previously paid on your profits. Previous carrybacks were limited to two years. If, after applying this carryback to previous years you still have a net operating loss (nol), you can carry it forward for up to 20 years. This new extension applies only to businesses that have gross receipts of $15 million or less.

New extensions on depreciation rules allow you to accelerate depreciation taken on new assets purchased in 08 and 09.

Last year, lawmakers allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off 50 percent of the cost of depreciable property, such as equipment, tractors, wind turbines, solar panels and computers acquired in 2008. Increase deductions mean less taxable profits to your business.

The new rules extend this 50 percent bonus depreciation allowed for property with a recovery period of 20 years or less for 2009. In addition, Code Section 179 which allows for accelerated depreciation for used or new assets, has been increased from $125K to $250K. Unlike Code Section 179, depreciation expensing that is available for new or used property, bonus depreciation is available only for new property or equipment.

Just remember, the more you increase depreciation for 09, the less you'll have available for future years. Contact your CPA or tax accountant about how these new provisions might allow you to decrease your taxable income for 09.

To find out more about these programs, visit the SBA website or the Des Moines Area SBA District Office to obtain a list of SBA-participating lenders in our area.

Our Small Business Development Centers (SBDC) are partially funded through the SBA. These offices offer free counseling and research to small businesses. They also are knowledgeable about other resources in your area and can connect you to other service provides and possible financing sources.

Finally, you will find a collection of other useful links by visiting the New Iowa Group web site and clicking on the 'Business Resources' hotlink.

In Good Times and Bad, Innovation Can’t Wait

Jonathan Ortmans, President, Public Forum Institute

Every day—while building roads, giving inoculations, sitting at computer screens—individuals are quietly thinking: “I know a better way to do this.” Or: “I could create something new that would make this easier for everyone.”
And then they go back to work, never transforming their thoughts into action. Why does this happen, and how can we unleash these hidden ideas?
Especially in times of crisis and uncertainty, innovation can be stifled by hesitancy to risk. People are tempted to hunker down in their cubicles until the storm passes. Yet that could be the most dangerous course.

As entrepreneurs know, timing matters in launching a new business, or improving an existing one. If you wait too long, your great idea may become irrelevant.

Yet many workers wait until a worst-case scenario—such as a layoff or corporate bankruptcy—leaves little choice but to finally take a risk. Anecdotes abound of people who say losing their jobs was “the best thing that ever happened to me” because they finally had the impetus to follow their dreams.

But that’s an impetus no one should wait for. Innovation is the engine that powers cultural development and economic growth—and when an idea sits stagnant, that engine stalls.
To get it moving again means fixing a number of paralyzing misperceptions. The Kauffman Foundation’s 2008 Economic Crisis Survey reports that seventy-one percent of Americans believe the economic crisis has made it more difficult to become an entrepreneur. While half of respondents saw a market for their ideas, only a quarter would consider starting a business within the next five years; even taking into account the economic crisis, this may be an excess of caution.

“The study shows a gulf between opportunities and those willing to seize them,” the survey reports. Ironically, in this same survey, the majority said they trusted entrepreneurial leadership to be the force for economic revitalization and survival.

To transform economic crisis into success requires more ordinary citizens seeing the world the way entrepreneurs do: perceiving the opportunity in the risk. In a World Bank study in China, for instance, entrepreneurs saw economic instability as far less of a problem than did non-entrepreneurs; the former were more worried about tax law.

Of course, great opportunity does not necessarily require huge risk. “American entrepreneurs work progressively; Russian entrepreneurs look for a breakthrough,” observed Sergey Borisov, president of a Russian public organization of entrepreneurs, during a Russian-American entrepreneurial forum. Regardless of nationality, countless entrepreneurs have found that relatively small risks and incremental progress can yield large results. Many successful entrepreneurs got where they are today by doing so; they innovated based on processes and science they are familiar with. I encourage you too read some of the profiles on our website of entrepreneurs who started during economic downturns.

Now more than ever, it is vital to support entrepreneurial innovators who are willing to take risks with the resources and connections to make it happen. Striking out on your own does not have to mean going it alone. Despite the stereotype of long hours spent working solo, entrepreneurs often find they network more, not less, as they create new businesses. Many form international alliances in which they can share strategies, get inspiration and learn smart ways to manage risk.

One of these new communities, http://www.unleashingideas.org/, connects entrepreneurs at all levels from around the world. It is being launched as part of Global Entrepreneurship Week, held annually the third week of November in more than 75 countries. A visit here or with other like-minded innovators is a way of making that first move out of the cubicle to turn a great idea into a reality.

And there is no better time than now – especially if you’re already employed. In its research study, “The Entrepreneur Next Door,” the Kauffman Foundation reported that people in the United States who already hold full- or part-time jobs are actually more likely to venture into entrepreneurship. Many find opportunities to work within their current position to make their ideas happen, transforming and strengthening their places of employment, as the Japanese corporate model has taught.

In uncertain times like these, we need to redefine notions of risk and opportunity, and we must embrace insecurity as a necessary pathway to a brighter future. After all, in today’s economic climate, a secure position is a relative term. Our global economy needs massive infusions of new ideas and entrepreneurs with the discipline to develop them. Innovators who are already employed and are willing to dare will be the ones who lead the way out of economic danger and toward greater prosperity for all of us.

In the words of Goethe, “The dangers of life are infinite; among them is safety.”

Untangling Your Comingling: How to Separate Personal from Business Finances

All business owners know that before their business opens they have expenses. You may have incurred expenses in researching your business, preparing your business plan, advanced rent, remodeling or decorating, furniture and equipment, inventory, advertising or marketing, etc. Since your business wasn't "officially" open many business owners just use their personal checking account and/or personal credit card to pay for these expenses. This seems natural and easy and the last thing a new business owner wants or needs is something more complicated.


As time goes by the business owner may have established a business checking account and perhaps even a business credit card, but the habit of using their personal checking account and credit card has already been established. The business owners don't think twice about depositing business income into their personal account or picking up some personal items when paying with a business credit card. This bad habit has its own name – it's called commingling.

The main problems with commingling are:

• Unless you are very well versed in accounting you undoubtedly have a much bigger mess than you think you do. It's not uncommon for me to see people who have expensed their personal car payments as "auto expense" even though the business doesn't own their car. Even more common is multi-level marketers who purchase and expenses their inventory on their company books, but use it personally.
• Your financial statements (income statement and balance sheet) are pretty much useless. If you're commingling then it's impossible to determine what your actual net profit or loss from your business is.
• If the IRS suspects that you've been commingling you become an ideal audit candidate. This is because the IRS knows how difficult it is to clean up the mess you've created; thus they know you most likely have not properly reported your income and expenses on your tax return. In addition, the IRS is also aware that the most common items which are commingled include personal use of autos, computers, phones, meals, etc.
• If you live in a state that has sales tax, you may end up on their audit list. Since you are allowed to buy products which you intend to resell without paying sales tax these states want to make sure that you sell every product that you didn't pay sales tax on. If you instead took the product home for personal use, you are required to pay the sales tax or you're in violation the law.
  

Obviously the best course of action is to never get into this mess in the first place. However, if it's too late for that, try these steps to help straighten things out:

• First, stop the commingling. Always have a business debit card and credit card with you. If you are at a store where you intend on purchasing both personal items and business items, separate them before you get to the check stand and have them ring up two separate invoices.
• Second, review all your business and personal receipts. Highlight all your business expenses on each receipt and total them.
• Third, review your accounting program against your highlighted receipts and correct any errors you may have made. If you've recorded a personal expense on your company books remove it. If you've forgotten to record a business expense on your company's books add it. If you're not sure if an expense is a business or personal expense ask yourself these questions:
  1) Is this expense necessary to generate income in my business?
  2) Is this an expense that other businesses in my industry would also have?
  

If your answers to the two questions above are "yes", then chances are it's a legitimate business expense.

• Fourth, review all your sales and trace them to your deposit slips. Make sure that any deposits which you entered into your personal account have been accounted for in your business. If you've deposited any personal money into your business make sure it has not been recorded as income, but rather a loan or capital, etc.

After sorting out this mess once you won't want to do it again, which is usually good enough incentive to start doing things right.