John DeLillo has routinely competed against half a dozen businesses when trying to win public works projects for his Willoughby paving firm.
But the president of the Ohio Paving Construction Co. recently found himself among 28 companies bidding on a project to install gravel parking lots and walking trails in Geauga County’s parks.
“One contractor traveled all the way from Salem [south of Youngstown] and won the bid over local contactors,” says DeLillo. “There are now many more contractors traveling from other parts of Ohio to bid on fewer jobs.”
DeLillo has never seen business this bad since starting his company 16 years ago. The bulk of Ohio Paving’s business is parking lot installation for commercial, industrial and residential clients, but that work has dried up considerably during the past few months. About 20 to 30 percent of his business includes installing bridges, sidewalks, walking trails and towpaths for parks and municipalities throughout the region.
“I’m holding on by a thread,” says DeLillo. “This recession is so across-the-board and so deep, you have to feel for everybody, regardless of what business they’re in or what employers people work for.”
Nevertheless, small-business owners like DeLillo are hopeful the $790 billion American Recovery and Reinvestment Act of 2009 approved by Congress in February will help create new business opportunities. Part of the package includes pumping $81 billion into a wide range of public works projects — roads, bridges, highways, railroads, wastewater treatment plants, drinking water systems, fire stations and childcare centers, renovation of foreclosed properties and reclamation of industrial brownfields — all of which could directly benefit contractors like DeLillo.
“A number of our clients have asked us to review specific provisions of the recovery act and recommend how they may go about competing for the new business the stimulus bill is expected to generate,” says James Simon, senior associate with Buckingham Doolittle & Burroughs. “All businesses are beating the bushes hard to generate new revenue opportunities, and the stimulus bill offers another set of bushes that companies can start looking through.”
In addition, the recovery act provides billions more in financial and tax relief — some of it immediate — that will benefit sole proprietors, entrepreneurs and small companies. Here are several ways you and your business may benefit from Uncle Sam’s recent influx of cash.
Deferred loan payments. A new loan program under the Small Business Administration enables business owners to defer payments for six months on qualifying loans of up to $35,000. “This could provide some relief for small companies experiencing slow cash flow [that] need some time to make it through this challenging environment,” explains Peter Constantino, a partner at accounting firm Ciuni & Panichi Inc.
Refinancing opportunities. The recovery act allows small companies to refinance their SBA 504 loans on fixed assets such as buildings, land, machinery and equipment. “This refinancing tool will allow business owners to get some cash out to apply to more immediate needs of their company,” says Steve Millard, president and executive director of the Council of Smaller Enterprises of Cleveland.
Fee relief. The SBA provides guarantees on loans for small companies that would otherwise not qualify for a business loan because of insufficient collateral. The stimulus bill temporarily removes fees charged by the SBA for its guaranteed loans. For example, on a $1 million loan, a small business would save $26,250 in fees, according to Citizens Bank, a small regional financial services company that plans to increase the number of SBA loans to businesses because of the stimulus bill.
More guarantees. The stimulus bill authorizes the SBA to increase its guarantees on some loans from 75 percent and 85 percent to 90 percent. This provision is expected to encourage banks to make more loans to small companies. The guarantee means if the small business cannot repay the loan, the banks can recover 90 percent of the unpaid loan from the government.
Work opportunity tax credits. If your company is in a financial position to hire new employees, the economic recovery act expands the work opportunity tax credit to two categories: unemployed veterans or a “disconnected youth,” which is defined as a person 16 to 25 years of age who is not currently attending school, is unemployed or is unemployable because of lack of skills. Businesses can claim a tax credit equal to 40 percent of the first $6,000 of wages.
Microloans. The SBA microloan program gets a $30 million shot in the arm, providing enough cushion to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders.
Big deductions. For capital equipment purchased this year, companies are allowed to deduct up to $250,000, which is almost double the previous deduction of $128,000, says Steve Hartstein, a certified public accountant with Skoda Minotti.
This deduction applies to equipment worth $800,000 or less. Property that often qualifies includes machinery, office equipment, computers, software, signs and most passenger vehicles. In addition to the $250,000 write-off, you can deduct another 50 percent, plus the normal annual depreciation tax deduction on the equipment’s expected lifespan.
For example, if you buy equipment worth $500,000 that is expected to last five years, you can deduct $250,000. On the remaining $250,000, you can also take an additional 50 percent write-off and the annual depreciation deduction — $50,000 — over the next five years. That means in the first year, your total tax deduction is $400,000. “This is a huge tax advantage for businesses,” Hartstein says.
Benefits from losses. The government allows companies to benefit from a tax deduction for net operating losses. Companies have been allowed to carry back those losses two years.
“The stimulus bill now allows companies to carry back those losses three, four or five years,” Hartstein says. “For example, if your company lost money in 2008, you can carry back that loss to 2003 when your company made money. That allows you to recalculate your 2003 tax return, which may provide your company with a cash refund.”
Less estimated tax. If you receive 50 percent or more of your income from your small business and your adjusted gross income is less than $500,000, you will also see some tax relief.
“Traditionally, a small-business owner would base her estimated quarterly tax payments on 100 percent of the previous year’s annual income,” Simon explains.
The stimulus bill allows small-business owners to base their quarterly estimated tax payments on 90 percent of their 2008 income. “This recognizes that small business owners experienced reductions in their income during 2008 and provides them with some tax relief on their estimated payments in 2009,” Simon says.
Tax deferments. If your company files for Chapter 11 bankruptcy, which allows you to restructure your business and negotiate payment terms with your creditors, the stimulus bill enables you to defer taxes on debt cancellation. For example, if your bank agrees to forgive $30,000 on a $100,000 loan, that $30,000 is considered taxable income. The stimulus bill allows you to defer paying tax on that $30,000 for five years, and then pay the tax over year six through year 10, says Simon.
State assistance. The Ohio Treasurer’s office offers its GrowNOW program, which provides a 3 percent interest rate reduction to small businesses. After a bank approves a loan, the small business can apply for an interest rate reduction from the Ohio Treasury. If approved, the Treasury will place a certificate of deposit with the bank at the reduced rate of return. The bank then applies the reduction to the business’s borrowing rate for two years, which can save a small business $24,000 in interest.
Although the recovery act may help bolster growth and restore stability for some businesses, many believe the key to fully restoring Northeast Ohio’s economy lies in consumer confidence.
“A change in the economic climate is dependent on a change in consumer sentiment,” says Edward Lowe, senior manager for the tax services group at Howard, Wershbale & Co. “And that will only occur when they feel their jobs are secure.”