“Small businesses are the heart of the American economy,” President Barack Obama said in a speech at the White House last spring. “They’re responsible for half of all private-sector jobs, and they created roughly 70 percent of all new jobs in the past decade. They’re not only job generators, they’re at the heart of the American Dream.”

To back up his claim, the President signed into law the American Recovery and Reinvestment Act—informally known as the stimulus package—on February 17, 2009, which authorized $787 billion in government spending, incentives and tax relief. The main purpose of this legislation is to kick-start American economic growth and create or save jobs over the next two to three years. What exactly does the stimulus package contain and how can business owners in the decorated-apparel industry benefit from it?

Indeed, the US Government has shown its commitment to small businesses by doubling the Small Business Administration’s budget, enabling it to give out more than $6 billion worth of loans, as of this writing, since the stimulus bill was signed. But business owners need to separate the feel-good messages and promises from the facts and conditions to qualify for said money. Care to find out what’s in it for you? Let’s get educated!

Give me some credit

Located at leading universities, colleges and state economic-development agencies (and funded in part through the SBA), Small Business Development Centers, of which there are approximately 1,000, are available to provide no-cost consulting and low-cost training. (To find the center nearest you, visit www.asbdc-us.org.) The mission of the Association of Small Business Development Centers network is to help new entrepreneurs realize their dream of business ownership, and to assist existing companies to remain competitive in the complex marketplace of an ever-changing global economy.

One such service center is located at Kennesaw (Ga.) State University’s Coles College of Business; its Director, Lydia C. Jones, recently hosted a town-hall type meeting with 20 entrepreneurs and US House of Representatives Congressman Dr. Phil Gingrey (R-Marietta). As expected, Dr. Gingrey wanted to discuss health-care reform, but one of the invited business owners interrupted the Congressman stating, “I think I speak for the group when I say if we don’t get access to capital through loans and some tax relief, there will be no need for health-care reform because we won’t have any employees to cover when we are forced to close our doors and go out of business.”

As an example of how crucial being and how difficult getting approved for lines of credit has become, the entrepreneurs were asked “who has applied for business loans in the past year?” and nearly everyone raised their hands. The obvious follow-up question—“Who was successful in securing a loan?”—was then asked and every hand was lowered.

The small business stimulus package breaks down the funding that the SBA will have like this:

$375 million to lessen or remove loan fees and improve the SBA’s guaranteed share up to 90 percent of some loans;

$255 million to help small businesses specifically for meeting the debt payments via American Recovery Capital (ARC) loans;

$30 million to enlarge the SBA’s microloan program; and

$15 million to grow the SBA’s surety bond guarantee policy to cover bigger contracts.

There has even been talk recently of diverting bailout funds from banks to aid small businesses—a move that would be a sure signal of a dramatic shift in focus on the growing problem of small businesses folding or filing for bankruptcy protection. The Obama Administration is putting pressure on banks to extend credit to small businesses by requiring banks to report its lending activity and calling for all banks to increase small-business lending generally.

Of the administration’s initiatives, the one that will most directly help struggling business owners is the ARC loan—designed to give viable small businesses suffering immediate financial hardship some temporary relief so they can get their cash flow back on track. However, the ARC loan program has its share of snags and pitfalls.

Build me an ARC

An ARC loan is a deferred-payment loan of up to $35,000, to be used for principal and interest payments on existing, qualifying debt/loans. Sorry, credit-card debt does not qualify for this type of loan. But, for example, let’s say, a decorated-apparel business took out a bank loan last year to purchase some new equipment and has fallen on some hard times of late due to declining sales, frozen credit lines, difficulty in meeting payroll and/or something else. Provided the apparel decorator is an established, for-profit enterprise with evidence of profitability or positive cash flow in at least one of the past two years, a participating bank/lending institution can approve an up to 60-month ARC loan at zero percent interest and no payments for twelve months. Sounds like a great deal, huh? What’s the catch?

In order for a bank to deem a business viable, an analysis of financial statements going back three years and future cash-flow projections based on reasonable growth going forward two years are used. Also, the borrower must certify that it is currently no more than 60 days past due on any loan being paid with an ARC loan and it must have an acceptable business credit score as determined by the SBA.

Further, the lender determines if immediate financial hardship exists. The SBA has several categories for determining hardship status, such as increase in business costs in the preceding year and changes in current ratio, to name a couple. The rub in obtaining an ARC loan is the time and effort it takes a bank loan officer to research and approve a $35,000 loan is about the same amount of time to authorize a $350,000 loan (and banks would rather spend their time with the larger client). That is why many states have so few banks that choose to participate in the ARC loan program. Still, some state banks have enthusiastically embraced the concept. As of this writing, Minnesota banks have made 181 ARC loans and Wisconsin 154. ARC loans will be available until September 10, 2010 or when the currently-authorized $255 million is gone, whichever comes first.

The best advice a small-business owner could be given about claiming a piece of the stimulus bill booty and getting a loan processed faster is to dig out your old business plan and update it, along with your marketing plan, management plan and financial projections. Need some help with those? Here’s where your nearest SBDC service center can help. Assistance with all of those plans and projections are available free-of-charge.

Other business-friendly loans

The SBA has other alternatives to ARC loans to offer assistance to small businesses.

The Patriot Express Pilot Loan Initiative is for veterans and members of the military community wanting to establish or expand small businesses. Eligible military individuals include active-duty service members eligible for the military’s Transition Assistance Program, veterans (including service-disabled veterans), reservists and National Guard members, current spouses of any of the aforementioned, and widowed spouses of vets who died during service or of a service-related disability.

These loans are offered by SBA’s network of participating lenders nationwide and feature the fastest turnaround time for loan approvals.  Loans are available for up to $500,000 and qualify for SBA’s maximum guaranty of up to 85 percent for loans of $150,000 or less and up to 75 percent for loans over $150,000 up to $500,000.  For loans above $350,000, lenders are required to consider all available collateral.

In October 2008, SBA introduced the newly restructured and enhanced Community Express Pilot Loan program, which has been redesigned to better focus SBA’s financial and technical assistance resources on the needs of the Nation’s underserved communities.  Under this program, approved SBA lenders are being authorized to adopt SBA’s most streamlined and expedited loan procedures to provide a unique combination of financial and technical assistance to borrowers located in these low to moderate economic zones.

Loans are available for up to $250,000 and standard SBA interest rates apply: Lenders may charge up to prime plus 2.25 percent for maturities under seven years and prime plus 2.75 percent for maturities of seven years or more, with rates two percent higher for loans of $25,000 or less and one percent higher for loans between $25,000 and $50,000.

In addition, to encourage small businesses start-ups, SBA also makes eligible loans of $25,000 or less for Community Express, regardless of where small businesses are located. An excellent website to see a complete explanation of these SBA loans is www.borregospringsbank.com.

What a (tax) relief

The Internal Revenue Service allows a number of tax credits that many businesses might not be aware of. Unlike tax deductions, tax credits are subtracted from the amount of taxes one owes. Many credits are broadly applicable, so there is usually more than one that covers a company’s expenditures. Business owners should consult their tax advisors to determine the applicability and potential benefit of any tax credit to their situations.

The IRS provides “green” initiatives that may benefit small businesses. For example, if a home-based business retrofits its property for energy efficiency, a tax credit may be available. Upgrading one’s heating and air conditioning systems, adding solar energy systems to buildings, and building alternative energy projects all trigger tax credits, helping to lower the overall project costs.

Those small businesses which employ workers who have been jobless for more than six months and also those students who left school six months ago and are still unemployed, will receive special tax credits under the stimulus bill.

Hiring military veterans as they re-enter the workforce can reduce payroll expenses through the work-opportunity credit, which reduces tax liabilities by as much as $2,400 of the first-year salary paid to a vet. The amount rises to $4,800 if the new employee is a disabled veteran.

Every year businesses can deduct the entire cost up to $250,000 of new assets under Section 179 of the tax code rather than depreciating them over time. However, the type of equipment that a business buys is important for receiving this deduction. It cannot apply to land, building and other improvement purchases. But, it is applicable for things like computers, vehicles, office equipment and the like.

It is possible for an asset to qualify for up to three different types of depreciation at the same time in the year the asset is placed into service. An asset can qualify for Section 179 depreciation, 50 percent Special Depreciation, and a regular depreciation method such as Modified Accelerated Cost Recovery System (MACRS), simultaneously.

Contact your nearest Small Business Development Center and your tax advisor/accountant to find out for what stimulus money your business is qualified. Good luck!

Broad Strokes

This month’s broad strokes include:

In February, President Obama signed into law the American Recovery and Reinvestment Act—informally known as the stimulus package—which authorized $787 billion in government spending, incentives and tax relief.

The small-business stimulus bill allows the SBA to fund loans in several ways: $375 million to lessen or remove loan fees, $255 million to help small businesses specifically for meeting the debt payments via American Recovery Capital (ARC) loans, $30 million to enlarge the SBA’s microloan program, and $15 million to grow the SBA’s surety bond guarantee policy to cover bigger contracts.

Of the President’s initiatives, the one that will most directly help struggling business owners is the ARC loan—designed to give viable small businesses suffering immediate financial hardship some temporary relief so they can get their cash flow back on track.

The Internal Revenue Service allows a number of tax credits that many small businesses might not be aware of. Many credits are broadly applicable, so there is usually more than one that covers a company’s expenditures.