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How the Recovery Act Encourages Small Businesses to Increase Hiring

The recently passed American Recovery and Reinvestment Act promises to help small businesses increase their ability to hire employees, which will hopefully stimulate the economy. The White House predicts the legislation will create or save 3.5 million new jobs over the next two years. Here’s a summary of how certain provisions could encourage small businesses to employ new workers.

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Tax Credits for Hiring

The stimulus law extends the benefit of the Work Opportunity Tax Credit, which gives businesses a tax credit of up to $2,400 for employing traditionally disadvantaged workers, including disabled employees, food stamp recipients, and ex-felons.

The stimulus package expands the definition of these disadvantaged “target groups” to include certain unemployed veterans and disaffected youth (ages 16-25, who aren’t working steadily or in school).

Jennell Williams, president and CEO of HR Workplace Solutions in Lansdowne, Pennsylvania, says companies who rely on these employees have more of an incentive to hire them. As an added benefit, they’re likely to attract str

onger candidates than in years past. “Because so many people are out of work now, small business owners can take advantage of the legislation’s tax benefits while also being more selective about the people they hire,” Williams says.

Additional Microloan Funding

The stimulus package provides an additional $6 million to fund microloans this year, meaning companies who need to borrow smaller amounts of money (up to $35,000) have a better chance of securing the loan.

Access to this funding is important because the cost of hiring goes beyond paying an employee’s wages, notes Sherryl Baker, president of Baker Human Resources Consulting in Charlotte, North Carolina.  “Hiring also involves recruitment and training costs. Before we can see an increase in hiring numbers, small businesses will have to increase funding to cover those additional expenses,” she says.

Reduced SBA Loan Fees

The Small Business Administration (SBA) reports that minority- and women-owned businesses are three to five times more likely to receive an SBA-backed loan than a conventional bank loan. As part of the recovery act, the fees for this type of financing have been temporarily reduced.

In addition, the SBA is temporarily increasing the guarantee on some 7(a) loans up to 90%, making them less risky for banks. This should spur more lending.

The cost of this legislation will run into the billions of dollars, but officials say it’s necessary to help small businesses get back on their feet.  In a released statement, SBA acting administrator Darryl K. Hairston said:  “With these critical steps by SBA, and the Treasury Department’s commitment of up to $15 billion aimed at getting lending markets flowing again, we are standing up with small business owners across this country and telling them how we are going to put much-needed capital in their hands.”

Ability to “Carryback” Losses on Taxes

The legislation provides tax help for struggling companies, which may

free up more money for hiring. Small businesses that have a net operating loss can carry back those losses for five prior years on their returns, instead of the customary two years. The provision applies to small enterprises that have gross revenue of up to $15 million.

Increased Funding for Local Projects

Money is being budgeted for various community initiatives, particularly in the areas of public construction and “green” science.  Related small businesses may be able to expand if they’re tied to these projects.  To find what funding is available in your geographic area, visit Recovery.gov.

Small businesses are responsible for employing about half of all workers in private industry.  If they’re hiring, then the economy can recover.

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