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Small business needs access to capital more than tax cuts

aroraRohit121610_optBY ROHIT ARORA

While politicians try to position the extension of the Bush tax cuts to the expansion of small businesses, the benefits of the upper income tax reductions to entrepreneurs is exaggerated. Most small-business owners don't make more than $250,000 a year in profits, according to the Congressional Joint Committee on Taxation. Thus, the claim that small businesses will be hurt if taxes on the top income brackets increase is misleading, since only a small percentage of small businesses would be impacted.

What small business owners really need is access to capital so they can expand and create jobs in this challenging economy. They also need relief from high health-care costs, and incentives to save money on energy bills and other costs.

There have been conflicting reports from various sources about whether small business lending has actually increased. Some experts claim that banks are not lending, while others say that financial institutions are willing to make loans and that demand from borrowers is down and will remain as such until small businesses determine their end-of-year performance, particularly in the 4th quarter.

What we see at Biz2Credit is that demand does indeed exist and that entrepreneurs are looking to invest in new businesses. Last month, Nisha Khanna opened a Sweet & Sassy franchise at The Shoppes at Old Bridge (3877 Highway 9) in Old Bridge, NJ. When she began her search for capital during the darkest days of the credit crunch in 2009, she could not find anyone willing to lend her $300,000 to open her franchise. Repeatedly, she was denied funding despite owning an existing successful business and having a strong personal credit history. By the summer of 2010, she secured her start-up capital from Trenton-based RomAsia Bank and now runs a thriving new business.

Buoyed by the passage of the Small Business Jobs Act in the fall, an increased number of financial institutions are beginning to loosen credit. The law's enactment and a general upswing in the economy have raised optimism among small business owners and potential lenders, as well.

In an analysis done in November of over 500 small businesses in the greater NY-NJ-CT area, over 65% of businesses reported that their revenues have grown between 6-10% over the last year. That compares favorably with our June survey, which indicated that only 35% reporting that their revenues had grown during the previous 12 months. The research also found that nearly six out of ten business owners will be looking to start making investments in their businesses in 2011 — that's up from just 27% reported in June. Even better news is that nearly a quarter of those sampled are looking to hire more people in 2011, an increase from 10% reported in June.

Lending institutions, particularly community banks, such as RomAsia and New Bank, which has opened branches in Closter and Fort Lee, have picked up the slack for the big banks. Additionally, micro lenders and credit unions are proving to be good sources of capital for small businesses. Meanwhile, many larger lenders have recently announced an increased focus on small business lending and are adding staff to target this sector. This can only be viewed as good news for the economy as we end 2010 and approach the New Year.

Rohit Arora, an expert on small business lending, is co-founder and CEO of Biz2Credit (www.biz2credit.com), which connects small business owners with 150+ lenders and service providers via its safe online platform. KPMG ranked Biz2Credit among the top 100 emerging companies in 2008.

 

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