Now that election 2012 is over, pundits have begun speculating as to what an Obama second term will mean for the small business owner. Many worry about the impending fiscal cliff, which was set in motion last year when the Super Committee failed to reach a consensus on the deficit. Unless an agreement can be reached, tax hikes and spending cuts are scheduled, which will, no doubt, thrust the economy into another recession. Yet, there is still much to be optimistic about as we look ahead.
First term successes
During Obama’s first term as president, small businesses benefited from programs such as the Small Business Jobs Act of 2010 and the Jumpstart Our Small Business Startups (JOBS) Act. Small businesses also benefited from billions in federal-prime contracts. The combination of lower taxes and easier access to federally guaranteed loans helped small businesses to begin their climb back from the recession.
What can we expect?
Now that a second term is assured, what can small business owners expect? In a November 10, 2012 article for MyrtleBeachOnline.com titled, “A small business outlook for Obama’s 2nd term,” Joyce M. Rosenberg took a look at the possibilities. The article examined how healthcare regulations and taxes may impact small businesses.
When it comes to healthcare, the ramifications won’t be seen until the law goes into effect in 2014. According to the article, “What employers don’t know yet is how much that insurance will cost. That won’t be determined until states set up exchanges where individuals and companies can buy coverage.”
As for taxes, the President may have a fight on his hands. However, there are signs that conservatives are at least willing to consider compromise. The president wants to raise the top tax rate on personal tax returns to 39.6 percent.
Because many small business owners pass through their business earnings to their personal return, many fear that they will be especially hard hit if this measure passes. On the other hand, the president has proposed a cut in the tax rate for corporations from 35 percent to 28 percent.
Access to capital
According to Obama campaign spokesman Adam Fletcher, the President plans to expand the ability of small business owners to obtain loans. In a November 10, 2012 article for Terra.com titled, “Barack Obama’s Second Term Small-Business Agenda,” Diana Ransom gathered more details on what business owners can expect.
The President has already permanently raised the maximum loan size for the largest lending programs administered by the U.S. Small Business Administration. Planned expansion of the JOBS act will increase access to financing while protecting investors.
“The JOBS act contains a popular provision on ‘crowdfunding,’ that is, selling equity to anyone who has the cash and interest, not just to accredited investors, Ransom said. The law also creates an IPO on-ramp that gives young companies temporary relief from certain SEC regulations, making it easier and more feasible to go public.”
Access to capital through Federal loan guarantees and relaxed regulations should come as a welcome relief to many small businesses that were kicked aside by their lending institutions just as they were ramping up their recovery. In a November 1, 2012 article for Inc.com titled, “After the squeeze: after the worst financial crisis in decades, banks had no choice but to reduce risk,” Burt Helm described the impact of banks’ lending policies on small businesses.
According to Helms, over a three-year period from 2008 to 2010, small business loans fell from a high of $336.4 billion to $56 billion. Why the drop?
Helm explained, “Once the financial crisis was in motion, banks faced tremendous pressures. Government regulators introduced capital requirements that compelled banks to reduce their exposure to risk–mandates that often meant shifting more risk onto the borrower in the form of larger down payments, more collateral, and more onerous personal guarantees.”
Friendly neighborhood lenders
Now that federal policies are moving in the direction of easing access to financing, will small businesses go back to the large banks for their loans? Drawn by a wide choice in services it’s probable that many will return to the big lenders. However, Helm suggests that entrepreneurs consider working with their local community banks where they are more likely to develop a closer working relationship.
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