Obama Is Banking on Small Business

President Obama is banking on small business in the election year. His fiscal 2013 budget will eliminate capital gains taxes on investments in small businesses, offer a 10 percent tax credit when new hires are made, double the amount of deductions a startup can take (from $5,000 to $10,000), and extend 100 percent first-year depreciation for qualified properties. On February 13, he will submit details of this package to Congress.

Democrats and Republicans are both trying to trumpet their support of small business, and cutting taxes is always popular. The White House knows this and views small business growth as a lynchpin of its 2012 reelection strategy.

For several months, Biz2Credit has provided data on small business loan approvals at big banks, regional banks, credit unions, and alternative lenders to the President's Council of Economic Advisers. This is a sign that the Obama administration is placing an emphasis on the growth of small businesses. While the economy is in better shape than when he first took over, the recovery is has not been as robust as hoped. 

Capital for small businesses is still not easy to secure. In fact, big banks in particular are still quite stringent in their lending practices. Many are asking for up to three years' worth of financial data before approving loans. How can a startup provide three years worth of figures? This is a big challenge for entrepreneurs. 

Positioning himself as an advocate for entrepreneurship and innovation is a good strategy for President Obama. Recently, he named Karen Mills, head of the Small Business Administration (SBA), as a cabinet member. He called this decision “a symbol of how important it is for us to spur entrepreneurship, to help startups, to move aggressively so that we can assure more companies that create the most jobs in our economy.”

The SBA has indeed been instrumental in getting funding for startups, particularly during a period when financial institutions have been reluctant to lend. The agency's 90 percent loan guarantee program was very successful, and only a very small percentage of SBA-backed loans defaulted. 

While it is admirable that the President is trying to be innovative, the government's most effective tool to help small companies has been an agency created by Dwight Eisenhower a half-century ago. Rightly, President Obama has bolstered the SBA. Its loan programs have helped countless businesses get the funding they need for growth.