Tax cuts, credit cards, and an entrepreneurship incentive

Radhika Sivadi

3 min read ·


More business owners are getting credit with personal cards

Small business issues continue to hold center stage in election season. Here's a roundup of current events and reports from around the web this week related to small business and politics, including new legislation that would support immigrant entrepreneurs, various explorations of the access-to-credit crisis, and a discussion of tax cuts and small business.

Supporting immigrant entrepreneurs

A Democrat and a Republican in the House have teamed up to introduce a bill that would offer green cards to foreign entrepreneurs who live in the U.S. and establish and invest a minimum of $125,000 in a business here that creates and sustains full-time employment for at least three U.S. workers over two years. The National Small Business Association blogged its support for the legislation, which it says would also modify the EB-5 visa program to attract additional foreign investment.

Fewer debt delinquencies

Small business lending in June hit its lowest point since October, but was up two percent from the same period in the previous year, according to the Thomson Reuters/PayNet Small Business Lending Index. Reuters also reported that the PayNet data, collected from 250 leading lenders, indicate that only 1.11 percent of business borrowers are currently delinquent, which represents the lowest level since 2005 and is down significantly from a May 2009 peak of 4.410 percent.

Expensive credit

The New York Times reports on creative and expensive ways that small businesses are getting loans, from taking an advance based on outstanding invoices to selling and then leasing-back the company's equipment. The article also discusses credit card cash advances, loans from nonprofit community development financial institutions, and peer-to-peer lending platforms such as Lending Club and Prosper. Any of the arrangements can come with effective annual interest rates as high as 30 percent.

Is the business lending crisis linked to credit cards?

Scott Shane, a business professor at Case Western Reserve, shares in Bloomberg Businessweek his hunch about an unexplored cause of reduced lending to small businesses: a law passed in 2010—the CARD Act—extended consumer protections for holders of personal credit cards, but not business credit cards. He suggests that many business owners have swapped cards, and as a consequence their borrowing on them is tracked as consumer, not business, activity. Pointing to a connection between changes in credit cards and small business loan stats, Shane reports, is the fact that loans of under $100,000, including those taken with credit cards, "account for 95 percent of the drop in small loans to business in 2011." Before policymakers intervene with legislation designed to help business owners get more access to credit, Shane proposes someone "figure out how much of the decline in small loans to businesses comes from the shift from business to personal credit cards."

Tackling truth in tax cuts

Small Business Majority CEO John Arensmeyer writes in the Huffington Post that "the argument for extending the tax cuts for earners with income exceeding $250,000 annually for the sake of small business survival is erroneous and misguided. The vast majority of small business owners simply don't make that much money." Citing Tax Policy Center data, Arensmeyer notes that fewer than 2 percent of small businesses are in the top two income brackets. He argues, "When real small-business owners sit down to pay their bills and plan for the future, they worry about boosting sales, meeting payroll, affording health insurance, reducing their energy costs and the pending loan application at the bank. Our focus should be on helping them take advantage of provisions in the Affordable Care Act or increasing their access to capital, which will do far more to help them create jobs and grow our economy than ill-advised tax breaks for the super rich."

Radhika Sivadi