Economic Stimulus Bill Approved By House and Senate

Today, the U.S. House of Representatives and the Senate voted to approve the American Recovery and Reinvestment Act of 2009. Most importantly for booksellers, the final bill maintained key provisions supporting small businesses. At press time, it was expected that President Obama will sign the bill on President's Day, Monday, February 16.

Earlier in the week, ABA President Gayle Shanks, co-owner of Changing Hands Bookstore in Tempe, Arizona, urged the Congressional leadership to continue its support for small businesses in crafting the American Recovery and Reinvestment Act of 2009. ABA also had called on all member booksellers to contact their legislators in Washington as soon as possible to urge support for the bill's small-business provisions.

"We could not be more pleased that this important legislation contains targeted provisions that extend critical assistance to small businesses," said ABA COO Oren Teicher. "Following the lead of ABA President Gayle Shanks, booksellers nationwide urged their legislators to respond to the pressing needs of small business owners. While there were some alterations -- and additions -- to the small business provisions made during final negotiations, the breadth and scope of these provisions are a clear indication that our lawmakers heard booksellers loud and clear."

Teicher added that ABA will be closely tracking the implementation process for the small business provisions contained in the bill. Relevant information on how booksellers can take advantage of the new provisions of the American Recovery and Reinvestment Act will be available on BookWeb.org as soon as they are available. Watch for further coverage in Bookselling This Week.

Out of the total $787 billion stimulus bill, the conference appropriated $730 million to improve existing Small Business Administration (SBA) programs and creates new initiatives that will address the current economic crisis. The Senate Committee on Small Business and Entrepreneurship provided BTW with a rundown of the most significant provisions in the American Recovery and Reinvestment Act of 2009:

Temporary SBA Fee Relief: As a result of the financial crisis and the recession, small business lending in SBA's flagship loan programs -- 7(a) and 504 programs -- is in a freefall. The bill allocates $375 million to allow for temporary waivers or reductions in the fees SBA charges to lenders and borrowers in the 7(a) and 504 loan programs. When determining the amount and structure of the waivers/reductions, the bill requires SBA to give borrowers and smaller banks priority in receiving fee relief.

Temporary Increase in SBA Guarantee Levels: The bill allows SBA to -- on a case by case basis -- temporarily raise the guarantee level (up to 90 percent) for 7(a) loans, other than loans made through SBA Express program. Currently, the maximum guarantee levels are 75 percent for loans over $150,000, and 85 percent for loans of $150,000 or less. The increased guarantee will provide a higher level of protection for risk-weary small business lenders who have tightened their lending standards considerably in the wake of the credit crunch.

Business Stabilization Program: The bill will also help banks provide relatively small, short-term loans to small business borrowers experiencing immediate financial hardship. Specifically, the new program will temporarily allow SBA to (i) fully guarantee "stabilization" loans that cannot exceed $35,000, and (ii) fully subsidize a small business borrower's interest payments on the stabilization loan. A borrower does not have to begin repaying the stabilization loan until 12 months after receiving it, and the loan must be paid in full within 5 years.

Microloans: The bill appropriates $30 million for SBA's microloan program, with $24 million dedicated to microloan technical assistance, and $6 million for new microloans. By way of background, the microloan program provides very small loans to qualifying micro-businesses (typically businesses with fewer than 10 employees) by making funds available to nonprofit, community-based lenders -- called intermediaries -- which, in turn, make loans to eligible micro-borrowers in amounts up to $35,000. Borrowers are also provided with corresponding technical assistance to ensure that the loan proceeds are used effectively.

SBA Secondary Market Stimulus: Many SBA lenders -- in both the 504 and 7(a) programs -- rely on a secondary market for SBA loans. These lenders sell a portion of SBA loans they have already made to broker-dealers. The sales provide lenders with an important funding stream that allows them to extend additional SBA loans. The broker-dealers, in turn, pool the loans and sell them to investors in the secondary market. In the wake of the subprime mortgage crisis, the secondary markets for SBA loans have frozen. To thaw the 7(a) secondary market, the bill permits SBA to make loans to broker-dealers. These loans would then be used by the broker-dealers to finance the purchase of additional SBA loans from banks. Another provision in the bill will help unfreeze the secondary market for "first lien" loans in the 504 program by guaranteeing pools of these loans, thus making them more attractive to risk-averse investors who have essentially abandoned all mortgage-backed securities.

Small Business Venture Capital Stimulus: The bill attempts to stimulate the flow of venture capital in SBA's Small Business Investment Company (SBIC) program by simplifying the formula used to determine the maximum amount of SBA financing ("leverage") available to SBICs. Among other improvements to the SBIC program, the bill also makes "transition" leverage available to commonly-controlled SBICs, which will allow successful SBICs to operate a second or third fund, while maintaining the safeguards necessary to mitigate SBA's risk in the investment.

Surety Bond Stimulus: As a result of the financial crisis, surety companies are now rejecting bond applications because the applicants (usually contractors in the construction industry) cannot show that adequate financing is in place to complete the project. The bill will temporarily increase SBA's guarantee limit from $2 million to $5 million, and it appropriates an additional $15 million for SBA's surety bond revolving fund.

504 Program Improvements: With credit standards tightening, many credit-worthy small businesses have been denied new or additional loans for facility upgrades. The bill would allow a small business to refinance its existing loan through a 504 loan if at least 50 percent of the proceeds from the new 504 loan will be spent on qualifying expansion projects. In addition, the bill expands the universe of expansion projects that would qualify for a 504 loan. Current law requires the creation of one job for every $65,000 loaned; the bill reduces that amount to $50,000.

Paperless Lending System: The bill appropriates $20 million to facilitate SBA's transition to a paperless loan processing system, which will help reduce loan processing and turnaround times significantly.

Carrying Back Losses For Small Businesses: The bill would allow small businesses to use their losses in 2008 and 2009 to offset their profits from the previous 5 years (entitling them to a refund). Under the current law, small businesses can only offset their profits from the previous 2 years.

Small Business Expensing: A small business can deduct the cost of capital purchases used in its trade or business. In 2008, the Congress increased the expensing limit to $250,000. The stimulus extends the $250,000 limit to 2009.

Bonus Depreciation: The bill permits businesses to take an additional 50 percent depreciation deduction on movable property (equipment, tractors, wind turbines, solar panels, and computers) purchased and used in 2009.

New Markets Tax Credits: Investors receive new markets tax credits for making investments in communities with high poverty rates. The stimulus would authorize an additional $1.5 billion worth of credits in both 2008 and 2009.

Small Business Capital Gains: Under present law, an investor does not need to pay tax on 50 percent of the gain from the sale of certain small business stock so long as she holds it for 5 years. The stimulus increases the exclusion to 75 percent of any gain from such a sale.

Note: The bill allocates $25 million for the additional resources that SBA will need to properly implement the stimulus measures. The bill appropriates $10 million specifically for SBA Inspector General's oversight of SBA stimulus funds. The bill also requires a GAO report on SBA's progress in implementing the stimulus measures.