In the midst of the bank and automobile bailout of 2009, the federal government implemented policies to help small businesses obtain credit and relief from the recession. Primarily the government offered tax relief and easier access to Small Business Administration administered loans. The goal of the programs was to reignite the United States growth engine.
The stagnant economy and continued job loss seems to suggest that the efforts in 2009 did not meet their objectives. First, small businesses around the country continue to report difficulty in obtaining financing when they need it. Banks claim there is less demand for loans now because consumer spending is down. However, small businesses report being unable to qualify for loans at large banks. Additionally, the tax relief, including a decreased capital gain tax for investments in small business, did not encourage venture capital or other private equity investments.
So, President Obama and his economic team have decided to try again. During his State of the Union speech, President Obama announced two major initiatives to encourage economic growth for small businesses:
- elimination of the capital gains tax on investments in small businesses; and
- a $30 Billion fund to make loans available through small and community banks to small businesses.
Over the past two years, venture capital investments in technology and other research and development intensive businesses has been difficult to obtain. Venture capital has sought safer investments where a return on investment is, perhaps, more likely. Therefore, the elimination of the capital gains tax on investments in small businesses could encourage venture capitalists to invest.
Similarly, it is unclear how much more effective the $30 Billion set aside for small businesses at small and community banks will be than those funds made available through the Small Business Administration last year. Some claim small business’ demand for loans is down because of the economy. Others report that small businesses struggle to qualify for loans because of the economy. Ideally, if Congress approves the funds, the money will be made available to small businesses in a manner that will allow those businesses that have survived this far into the recession to thrive as we recover.
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