You couldn’t blame builders if they didn’t get too excited when President Obama unveiled his plan to unlock the frozen credit markets for small businesses in February. In the past, the housing industry hasn’t benefited all that much from changes in the government’s small-business provisions.
But Bill Renner, the NAHB’s director of single-family finance, and Robert Dietz, the NAHB’s director of tax issues, think that smaller builders can mine some nuggets from that plan if they dig deep enough.
The president’s plan allocates $15 billion to thaw the secondary credit markets by purchasing securities backed by guaranteed portions of 7(a) SBA loans. The plan eliminates or reduces borrower and lender fees associated with those loans. And the plan increases the percentage of small-business loans guaranteed by the Small Business Administration (SBA) to 90 percent from 85 percent.
Only builders that generate less than $33.5 million in annual revenue qualify as small businesses. And even they can’t use SBA loans to build specs or buy land. Builders generally use these loans for financing such things as building products purchases or even ancillary businesses. Dietz adds that builders didn’t get the tax relief they wanted either, which would have allowed them to write off losses in fiscal 2008 against profits five years back.
On the plus side, Renner points to a relatively unnoticed provision in the president’s plan that earmarks $255 million to help small businesses meet their debt payments by establishing a secondary market for that debt. Dietz ticks off other provisions that smaller builders might cash in on, including:
- A $250,000 tax break on capital investments for companies with less than $800,000 in taxable earnings;
- A 50 percent bonus reduction with no income limits that Dietz thinks might help builders reduce their contribution in aid of construction fees, such as what they get charged by the phone company when they need to move telephone poles;
- A credit-for-grant swap equal to 85 cents on the dollar, which allows states to make direct investments to low-income housing projects for up to 40 percent of their tax-allocation authority; Dietz thinks this could lead to more of these projects getting funded.
Dietz notes that in late 2007 Congress provided an exclusion for homeowners on any kind of home-related debt forgiveness, such as a mortgage modification, through 2010. Obama’s plan extends that to small businesses and offers a 10-year deferment schedule with no tax liability for the first five years and then a 20 percent per year paydown over the next five. Dietz believes this provision would most benefit builders in debt-to-debt restructures.