Factbox: Obama pushes small business lending plan

Fri Jul 23, 2010 3:21pm EDT

U.S. President Barack Obama speaks at the groundbreaking of a factory for Compact Power Inc. in Holland, Michigan July 15, 2010. REUTERS/Kevin Lamarque

U.S. President Barack Obama speaks at the groundbreaking of a factory for Compact Power Inc. in Holland, Michigan July 15, 2010.

Credit: Reuters/Kevin Lamarque

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(Reuters) - President Barack Obama is urging the Senate to pass a proposal that would provide $30 billion in capital the government could invest in independent community banks to increase lending to small businesses.

The House of Representatives last month passed its version of the bill, which provides for federal investments in independent banks with assets less than $10 billion. Supporters say the lending fund would support as much as $300 billion in new loans to small businesses, which account for a large portion of job creation in the U.S. economy.

Small businesses have been struggling to get loans since the financial crisis dried up credit availability.

Critics call the plan another government bailout for businesses similar to the $700 billion Troubled Asset Relief Program, which was used to prop up Wall Street firms during the 2008-2009 financial crisis.

Some of the tax and other provisions in the proposed bill have been modified from an earlier version. Here are the details of the proposed bill:

SMALL BUSINESS LENDING FUND

* The Senate bill, like the version passed by the House, would establish a $30 billion fund to provide capital to small community banks to prompt small business lending.

* Only banks with less than $10 billion in assets will be eligible. More than 90 percent of eligible banks have less than $1 billion in assets.

* Banks would pay a 5 percent dividend on the government capital investments. But dividend payments would decrease to as low as 1 percent as banks increase small business lending relative to a 2009 base level.

* Banks that do not increase their small business lending in the first two years after receiving the capital are to pay a 7 percent dividend.

OTHER PROVISIONS IN THE PROPOSED SENATE BILL

* The Senate bill provides $1.5 billion to support existing state small business credit initiatives. An earlier version provided $900 million. The House bill provides as much as $2 billion to help state initiatives.

* Small Business Administration loan limits would be increased in the Senate bill to $5 million from $2 million. SBA limits for its 504 lending program for commercial real estate projects would be increased to $5.5 million from $1.5 million. Loan limits for microloans would rise to $50,000 from $35,000.

* To encourage investments in small businesses, the bill would exclude some small business stock sales from capital gains taxes. The stock must be held for more than five years.

* Small business deductibles for start-up costs would be doubled to $10,000.

* Small businesses would be able to immediately expense up to $250,000 in capital spending. The bill also extends through 2010 tax provisions that allowed businesses in 2008 and 2009 to more quickly write off purchases of new equipment and other depreciable property.

* The bill frees up capital by allowing small businesses to carry back general business tax credits to offset taxes paid over the previous five years, instead of the current one year carry back. Anything left over can be carried forward for 20 years.

* The cost of the lending provisions and small business tax breaks are to be offset by a number of revenue-raising provisions aimed at clarifying and tightening tax rules.

* The bill would tighten eligibility rules on the cellulosic biofuel producer tax credit to exclude highly corrosive fuels such as crude tall oil which is a by-product of paper manufacturing.

(Reporting by Donna Smith; Editing by Neil Stempleman)

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