September 23, 2010
Months after the House passed a similar aid package designed to create loan money and reduce taxes for U.S. small businesses, the Senate has followed suit. All indications are that the final version of Small Business Jobs and Credit Act of 2010 (H.R. 5297) will be rectified by House and Senate leaders quickly as Democrats and President Barack Obama desperately want a pro-small business package inked into law in time to carry favor with voters heading into November's intriguing and increasingly heated 2010 General Election.
The Senate passed the bill Sept. 16 with 61 votes in favor. Months of partisan-fueled sparring over the effort essentially ended just two days prior when a pair of Republicansâ€”Sens. George Voinovich (OH) and George LeMieux (FL)â€”joined Democrats in an effort to end debate and move toward a quick floor vote. One of the few amendments heard on the Senate floor involved an attempt to repeal Form 1099 expansion (see related story), which failed.
A conference committee, including members of the House, will craft a final version of the legislation, likely with significant involvement of the Obama White House, based on the two sides' existing proposals. The reconciled version is all but guaranteed to be signed by President Barack Obama immediately. H.R. 5297 does not, however, include a recently unveiled Obama administration plan to allow small businesses to write off 100% of their new investment in plants and equipment through 2011.
The cornerstones of the bill include an array of tax cuts and the establishment of a $30 billion lending fund, which would provide capital to small, viable community banks to increase lending to smaller firms. The fund is designed to be performance-based and would incentivize those lenders that extend new credit by decreasing the dividend rate banks pay as they increase lending. The legislation was also purportedly designed to be deficit-neutral and potentially reduce the tax gap. It is widely held Democrats believed they needed this legislative effort to move forward to combat talk of a lackluster economic rebound, especially for badly struggling American small businesses.
Obama has been urging House and Senate leaders on the left to push through their differences and get the legislation to his desk as quickly as possible, stressing "this is a bill that would cut taxes and help provide loans to millions of small business owners who create most of the new jobs in this country." The president continued to remind lawmakers, the media and the voting public that the small business effort "won't add to the deficit" through any type of higher taxes.
"Small businesses across the country have been waiting for Washington to act on this bill for far too long," Obama added.
Most Senate Republicans argued against the measure as government intrusion on free markets and another costly measure on top of previous efforts. Part of the vitriol attached to the legislation could be traced to an early move by the Democratic leadership in the Senate to place strict limits on the GOP's ability to offer amendments on the proposal as well as the jockeying of the increasingly divided parties leading up to one of the more hotly contested general elections in recent memory. Similar legislation in the House passed in June, also almost entirely along party lines.
Brian Shappell, NACM staff writer
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The most controversial part of the long-debated small business aid package in Congress (see related story above) had as much to do with the health care reform effort as it did with actual small business job creation and tax implications. But, despite the latest failed attempt during debate to repeal Form 1099 filing requirements, the movement appeared to pick up even more steam from infuriated trade associations and advocacy groups.
Prior to passage of the Small Business Jobs and Credit Act of 2010 (H.R. 5297), Sen. Mike Johanns (R-NE) used debate on the legislation to make a run at repealing requirements that, starting in 2012, require nonprofits and many small- and medium-sized businesses to file 1099 forms with the Internal Revenue Service any time more than $600 in goods/services is bought from another business annually. The requirement was expected to help raise billions to pay for the previously passed health care reform effort. Johanns proposed in the H.R. 5297 amendment to eliminate a health care prevention fund and reduce penalties for businesses that do not buy mandated insurance. The amendment failed.
Sen. Mary Landrieu (D-LA) chided Johanns for the proposed amendment, which she characterized as a "joke" and an attempt to "sabotage" H.R. 5297 even though she, herself, has proposed a separate Senate measure to repeal the provision. It's among at least four proposals in the works on the Senate and House sides of the Capitol. There have been few, if any, credible solutions regarding how the provision could be repealed while replacing the billions the 1099 requirement would raise. For its part, the Obama Administration appears interested in pushing an amended proposal to exclude businesses with fewer than 25 employees and raise the trigger from $600 to $5,000.
Still, debate provided a platform for detractors to again swing at the political piĂ±ata that 1099 requirements, seen as a massive hassle not just from a monetary standpoint but a manpower one because of potentially mountainous paperwork, have become. The U.S. Chamber of Commerce, the National Federation of Independent Businesses and the American Subcontractors Association (ASA) all renewed calls to repeal the unpopular provision during the last week.
"Support for repeal is strong," said Emily Unker, ASA manager of government relations. "The main reason this amendment effort failed is the unpopularity of the revenue offsetâ€”a cut to the health care law's preventative care programâ€”which proponents of 1099 repeal are seeking to resolve. As a consolation, the Senate also rejected an ASA-opposed amendment that would have modified the 1099 law with a confusing minefield of exemptions. We still have several opportunities to repeal the 1099 expansion before the November elections, so please continue to lobby your members of Congress."
Brian Shappell, NACM staff writer
It Was a Dark and Stormy Night
It's time once again to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!
Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.
A subcommittee in the House Judiciary Committee recently approved a new bankruptcy reform bill aimed at protecting workers during restructuring.
The House Judiciary Subcommittee on Commercial and Administrative Law approved the Protecting Employees and Retirees in Business Bankruptcies Act (H.R. 4677) by an 8-4 roll call vote that fell strictly along party lines. House Judiciary Committee Chairman and bill sponsor John Conyers (D-TX) described the bill as a necessary one that would hamstring corporate debtors hoping to save their skins at the expense of their employees' livelihoods.
"H.R. 4677 is urgently needed to protect the jobs, benefits and retirement plans that provide for many of our working class families," said Conyers. "These reforms will provide transparency to the bankruptcy process and change the Bankruptcy Code so that executives must accept the same cuts in wages, benefits and pensions that they ask of their workers."
"It's time to level the playing field and eliminate the abuse of our bankruptcy laws so we can have a better ending, not the same old story," he added.
The legislation shares some similarities, at least in its stated goals, with the bankruptcy reform bill proposed by Sen. Sheldon Whitehouse (D-RI) in July, which NACM has covered since its introduction. Whereas Whitehouse's Small Business Job Preservation Act seeks to save jobs by making it easier for small businesses to successfully reorganize through the Bankruptcy Code, Conyers' bill takes aim at larger companies and manufacturers hoping to restructure their business by shirking their responsibilities to their workers.
Included in the bill are provisions that would make it tougher for debtors to reject collective bargaining agreements, and allow workers to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty. The legislation would also prioritize the payment of workers' severance pay and clarifies that any back pay awarded via the Worker Adjustment and Retraining Notification (WARN) Act is entitled to the same priority as back pay for any other legal violations.
The bill will now be considered by the full Judiciary Committee. It currently has 53 cosponsors in addition to Conyers, all of whom are Democrats.
Jacob Barron, NACM staff writer
Share Your Member/Association News
It's the first day of autumn! Vacations are over, your kids/grandkids are back in school and we are on the cusp of new fiscal years for governments and other businesses.
What's happening with you, your association? Share it with others in the November/December issue of Business Credit magazine. Deadline for this issue is tomorrow, September 24. Submit to email@example.com.
While customer analysis has always been an important part of the B2B credit management function, it's perhaps more vital now than at any point in recent history.
For many industries, the only customers seeking credit are the ones that are the least creditworthy, and many otherwise ethical businesses might stoop to certain accounting tricks to give their statements and balance sheets some extra pizzazz. Their hope is to lull the credit professional or analyst into thinking that they're in a better financial condition than they really are, and also that they're more likely to pay back any credit extended to them than they really are.
It's in these instances that a familiarity with standard accounting practices goes a long way toward protecting a creditor and their bottom line. Even basic knowledge of how transactions are accounted for, documents are organized and figures are adjusted can help a credit professional find their way around a potential customer's finances, ensuring that they don't miss something that could come back to bite them.
Whether you need a refresher course on accounting or are just starting out in the field, you won't want to miss Meredith Mostochuk, CBA's upcoming NACM teleconference, "Accounting ABCs," on September 27 at 3:00pm EST. Mostochuk's presentation will give listeners an ample look into the fundamentals of accounting, including a discussion of the four financial statements and how they relate to one another. She'll also discuss the various methods and practices that companies use to account for their finances, and illuminate a number of terms, charts and items you're likely to see in the accounting world.
With more than 10 years of credit experience in auditing, analysis and collections, Mostochuk is more than suited to lead the teleconference. In addition to being a CBA, Mostochuk is also a certified instructor for NACM, facilitated NACM's Online Accounting course and contributed to the establishment of NACM's Credit Learning Center.
To learn more about this program, or to register, click here.
Jacob Barron, NACM staff writer
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NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.
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For more information on NACM's MLBS, click here.
In another effort geared toward getting small businesses onto the exporting gravy train, the Export-Import Bank of the U.S. (Ex-Im Bank) recently approved the first transaction under its new Supply-Chain Finance Guarantee Program.
The new program, part of President Barack Obama's National Export Initiative (NEI), aims to provide competitively priced working capital finance to suppliers of U.S. exporters, with a specific focus on small- and medium-sized enterprises. The recently approved first transaction under the program was a 90% guarantee to support up to $100 million of liquidity from Citibank N.A. to suppliers of CNH America LLC, an agricultural and construction equipment manufacturer.
The transaction approved by Ex-Im's board of directors enables Citi to buy the accounts receivable belonging to U.S. suppliers and owed by CNH. These receivables are all related to purchases of goods and services by CNH for export-related production. "Our supply-chain finance guarantee is an innovative product that provides liquidity and strengthens the U.S. export supply chain to help create and maintain jobs, especially for small-business suppliers," said Ex-Im Bank Chairman and President Fred Hochberg. "We're pleased to approve the first transaction under this program supporting U.S. suppliers of CNH."
To qualify for the program, approved lenders must already have their own existing supply-chain finance program. At least 50% of the credit provided under the program must be extended to suppliers that meet the small-business definitions offered by the Small Business Administration (SBA).
Lending from Ex-Im has experienced an uptick in fiscal year 2010. Overall lending in fiscal 2009 totaled $21 billion, while authorizations supporting small-business exports reached a historic high of $4.4 billion. Overall lending in the first 11 months of fiscal 2010 (through August 2010) hit $21.5 billion in loans, guarantees and insurance.
To learn more about financing from Ex-Im, visit www.exim.gov.
Jacob Barron, NACM staff writer
Things You Can't Do
Recently, there was an article on Yahoo! Finance about the things a prospective employer cannot ask during an interview. These collections of laws are very similar to the rules outlined in the Equal Credit Opportunity Act (ECOA) for extending, modifying and terminating credit. As a credit professional, now is a great time to refresh your memory on both sets of laws if your company is ramping up to add staff and expand business. As a consumer, it's not a bad idea either!
Log into the NACM Resource Library and search for "ECOA" to read up on it.
The Federal Reserve again appeared unwavering in its belief that the sputtering pace of the economic rebound necessitates an "extended period" of historically low interest rates. The Fed's Federal Open Market Committee left the target for the federal funds rate at a range between 0% and 0.25% following its policy meeting Tuesday.
The Fed's statement again acknowledged the recovery is stalling somewhat, after months of the committee holding a more optimistic view. Still, it has little room to maneuver on rates because of how low they already are. And though the Fed announced a plan to purchase another $5 billion in Treasury notes earlier in the week, a move designed to help keep longer-term rates low as well, an announcement of additional purchases did not come in the Fed's Tuesday statement. Fed officials did leave the door open to do so at a later date, pending in part on employment figures in the upcoming weeks and months, which is a growing concern.
The Fed also hinted at growing concern regarding unemployment's subsequent impact on consumer spending/confidence, anemic conditions in commercial real estate and business spending that, while growing, is doing so at a slower pace than earlier this year. Committee member Thomas Hoenig continued to object to leaving the rate unchanged, voting against doing so in favor of an increase to enable the Fed to make a future downward adjustment if and when its impact is more badly needed. Hoenig, contrary to most of the voting membership, also believes inflation is more of a looming threat than his colleagues believe.
Meanwhile, a number of experts have started beating the drum that extended low rates could lead to deflation. NACM Economic Advisor Chris Kuehl, Ph.D., of Armada Corporate Intelligence, said such a scenario is possible though unlikely "as long as the consumer does not go into hibernation for an extended period."
"The threat of deflation is obviously present as there has been an absence of inflationary pressure for most of the last three years, and that is an abnormally long period of time," said Kuehl. "The recovery has been anemic thus far and has had very little inflationary impact. That is actually pretty good news as long as this trend doesn't accelerate into some kind of full-blown deflation along the lines of what Japan has been contending with for the past 10 years. But, thus far, the lack of inflation has meant that the Fed has had no reason to pull back on the attempts to bolster the economy. That has meant that double-dip [recession] threats have been minimized as well."
Brian Shappell, NACM staff writer
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C4F: Employment Connections for the Business Credit Community
A compromise has been struck and the world's banks are now facing a somewhat stricter system than had existed previously. Debate has been raging since the collapse of the financial system in 2008 and much of the controversy has been over what banks would be required to do in terms of protecting themselves against systemic risk. The essential reform was thought to be setting a new level of required reserve that would provide a more substantial cushion for banks in the event they encountered more market turbulence in the future.
The new rules essentially triple the size of capital reserves that banks will be expected to hold. The new key capital ratio will be 4.5%; it had been 2%. In addition there will be a further buffer of 2.5% to create an effective ratio of 7%. If banks fall under that number they will be subject to restrictions on both their dividends and compensation. Another 2.5% buffer is scheduled to be in place to counter economic cycles, but details about this system remain pretty murky and are not part of the original package.
The U.S. and Great Britain have been pushing for even more stringent capital rules as most of their major banks can already meet this requirement without raising any additional capital, and it is felt that more should have been required of them (a position that has not been shared by the major banks, by the way). The country that has been far more resistant to the increased ratios has been Germany as most German banks will now be forced to raise additional capital. The most aggressive debates have resulted from the fact that nations have very different banking structures and very different means by which business raises capital. In Germany, the largest companies depend on bank loans to expand as opposed to using the stock market to raise money through equity. The fear in Germany, therefore, is that restricted bank lending will put its economy at far greater risk than in the other nations.
Source: Armada Corporate Intelligence
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