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Ceiling on SBA-backed dealer loans raised to $5 million

November 15, 2010

President Obama on Sept. 27 signed legislation for small businesses that raises to $5 million from $2 million the limit on federally guaranteed loans available to thousands of small automobile dealers.

The Small Business Jobs Act offers a mix of tax cuts, loans, and revived stimulus provisions to ease the flow of credit.

Among other things, the new law contains the framework for a new SBA Dealer Floorplan Program (DFP), which is expected to be rolled out before year-end. Eligible loan amounts will be from $500,000 to $5 million with a 100 percent advance rate, a 5-year term, reduced fees, and guarantees up to 75 percent [other 7(a) loans have guarantees up to 90%]. The Act also sets a new maximum alternative size standard of $15 million net worth and $5 million in net income as measured over two years.

In addition to a new Small Business Lending Fund and a new State Small Business Credit Initiative, the Act:

• Eliminates capital gains taxes on investments held for five years for the rest of 2010.

• Increases to $500,000 the amount of capital investment businesses may immediately write off in 2010 and 2011, and raises to $2 million the level at which the write-off phases out.

• Extends the provision for 50 percent "bonus depreciation" through 2010, thus accelerating the rate at which capital expenditures can be deducted.

• Allows cell phone use to be deducted without burdensome documentation.

• Allows certain small businesses to "carry back" general business credits to offset five years of taxes, while also allowing those credits to offset the Alternative Minimum Tax.

• Changes the penalty for failing to report certain tax transactions from a fixed dollar amount to a percentage of the tax benefits from the transaction.