New Small Business Law Aids Acquisitions
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New Small Business Law Aids Acquisitions
Edward L. Fixen, President
BusinessQuest
President Obama signed into law the new Small Business Jobs Act of 2010 on September 27, 2010. The new law contains many provisions intended to provide incentives for small businesses to add new jobs. Many of these new provisions will also facilitate and improve the marketplace of small business acquisitions.
One of the key provisions that should encourage the acquisition of small businesses is the exemption of capital gains related to the purchase of small business stock. It has been my experience all too often that the seller’s tax liability related to a business sale is so significant that it virtually eliminates any incentive for a business owner to sell.
The white house report on the bill indicated that over 1 million small businesses are eligible this year for investments that, if held for five years or longer, could be completely excluded from any capital gains taxation. This tax benefit is significant and should provide a strong incentive for investors and companies to actively pursue acquisitions as part of their growth strategy. This capital gains tax saving should dramatically improve the market and ability of small business owners to find investors or buyers.
The capital gains tax exemption should also increase the number of small business acquisitions that are completed as stock purchases instead of asset purchases. This will also be favorable to business owner’s selling their business because stock sales are typically subject to less tax liability than a comparable asset sale. See BizPress article “Asset Sale vs. Stock Sale Important Facet of any Transaction” dated September 10, 2010 for more on the topic of stock and asset sales.
A second equally important provision of the new bill for small business acquisitions increases the maximum value of SBA acquisition loans from $2 million to $5 million. This change should significantly increase the number of buyers that can afford to buy businesses priced above $2 million. The new SBA loan size combined with the government’s infusion of $30 billion in lending funds to small banks specifically for the purpose of small business lending should act to further improve the availability of credit to small business investors and buyers.
In addition to facilitating small business acquisitions, there are several other key features of the new law, such as immediate depreciation write-offs, that should provide incentives for small businesses to invest in capital expenditures and spur hiring.
Author: Mr. Fixen is an Accredited Business Appraiser (AIBA) and Certified Business Broker (CBB). Mr. Fixen is the President of BusinessQuest, a business valuation and M&A brokerage firm serving small & mid size, privately-held businesses throughout Los Angeles, Inland Empire and all of California and can be found at www.BusinessQuestBrokers.com.
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