In modest victory for Democrats, Congress sends small business credit bill to Obama

Congress sends small business bill to Obama

WASHINGTON — Democrats controlling Congress are sending President Barack Obama a long-delayed bill to help struggling small businesses with easier credit and give them other incentives to expand and to hire new workers.

The legislation passed by a 237-187 vote that split along party lines. It establishes a $30 billion government fund to help Main Street banks lend to small businesses and cut taxes on both big and small businesses.

The legislation is aimed at easing a small-business credit crunch that worsened dramatically after the financial crisis two years ago.

It’s a modest victory for Democrats, whose jobs agenda has otherwise mostly been stalled by Senate Republicans opposed to new spending programs.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

WASHINGTON (AP) — A long-delayed bill to help struggling small businesses with easier credit and other incentives to expand and hire new workers is poised to clear its final hurdle.

The legislation — slated for a House vote Thursday — would establish a $30 billion government fund to help Main Street banks lend to small businesses. It also would cut taxes on both big and small businesses and boost Small Business Administration loan programs.

“It combines … tax relief with increased access to critical financing so that our nation’s small businesses can move forward on new or delayed expansion plans,” said Rep. Chellie Pingress, D-Maine.”Small-business growth means job creation.”

The vote would send the measure to Obama, giving him and his Democratic allies on Capitol Hill a much-needed, but minor, victory just six weeks before the midterm elections.

The measure passed the Senate last week but was overshadowed by a debate raging over the extension of Bush-era tax cuts.

The measure has received only tepid support from small businesses suffering as the economy slowly recovers from the worst recession since the Great Depression. For starters, demand for credit is down, and some businesses are sitting on sizable cash reserves.

“It won’t do any good. Business doesn’t need credit — business needs customers,” said Jade West, a lobbyist for the GOP-leaning National Association of Wholesaler-Distributors. “If they don’t have a customer base because demand is down, they’re not going to borrow because there is nothing for them to borrow for.”

And larger small businesses that pay taxes as individuals are more interested in stopping a looming increase in their top tax rates to almost 40 percent. They represent only about 3 percent of all small businesses, however.

The new loan fund would be available to community banks to encourage lending to small businesses, such as factories with 500 workers or less. Supporters say banks should be able to use the fund to leverage up to $300 billion in loans.

“It’s still very difficult out there to raise capital if you’re a small or mid-sized bank,” said Paul Merski, chief economist of the Independent Community Bankers of America, a trade group for smaller Main Street banks. “If the economy continues growing again and you have thousands of banks around the country that cannot raise the additional capital to meet the small business lending growth, then we have a stalemate.”

The loan fund is opposed, however, by most Republicans, who liken it to the 2008 bailout of the financial system. They warn it would encourage banks to make loans to borrowers who aren’t good credit risks.

“What we have today before us is junior TARP,” said Rep. Lincoln Diaz-Balart, R-Fla.

Democrats say the measure is needed to help small businesses cope with a credit crunch that worsened dramatically after the financial crisis two years ago.

This legislation would also aid lending by lowering Small Business Administration loan program fees and raising loan guarantee and lending limits.

The small business tax cuts in the bill include breaks for restaurant owners and retailers who remodel their stores or build new ones. Larger businesses could more quickly recover the costs of capital improvements through depreciation. Long-term investors in some small businesses would be exempt from paying capital gains taxes. And loan caps under the Small Business Administration’s chief lending program would be significantly raised.

The measure also would allow small business owners to deduct the costs of health insurance for themselves and their families from self-employment taxes but only for the 2010 tax year.

The GOP-tilting National Federation of Independent Business is only tepidly backing the legislation. The group is pushing both a full extension of Bush-era tax cuts and repeal of a requirement in the new health care law that requires that businesses file tax forms called 1099s with the Internal Revenue Service for every vendor that sells them more than $600 in goods.

“There’s some OK stuff in it, but the impact’s going to be minimal,” NFIB tax counsel Bill Rys said of the bill.

While there are lots of exceptions, the government defines a small business as 500 workers or less for most manufacturers and $7 million and under in annual sales for most non-manufacturing industries.