Obama’s small business proposals could help veterinary practices
President Obama recently introduced a series of proposals designed to create jobs, increasing access to loans and freeing up credit for small businesses.
At this point, the proposals are just proposals, and they would have to go through Congress to become a reality. NEWStat asked VetFinance Group, a veterinary-specific financial, management and marketing services company, how practices could take advantage of Obama’s initiatives if they pass through Congress. VetFinance Managing Directors Steve Dafnis and Ron Paterson provided their insight.
NEWStat: One part of Obama’s plan calls for the elimination of the capital gains tax on small business investments. How could a veterinary practice take advantage of this?
Dafnis & Paterson: On a macro level, economists tend to agree that a reduction in capital gains taxes will lower the cost of capital, boost investment, and stimulate economic growth. As it relates to veterinarians, those looking to sell their practices will automatically see a profit increase without having to adjust their prices.
For example, the practice that sold for $300,000, at a 17 percent capital gains tax rate would net the practitioner $249,000 (this example does not account for other selling charges). With no capital gains tax, that’s an extra $51,000 in your pocket.
Other types of investments, (stocks, bonds, mutual funds, real estate) could also be sold. With unexpected cash in pocket, any new veterinary practice investments now appear much cheaper. Expect an increase in all types of veterinary capital investment.
NS: The proposal also calls for $30 billion in Troubled Asset Relief Program (TARP) money to be routed to community banks for small business loans. Do you think this will free up credit for some veterinary practices, and if so would you encourage practice owners to look into this type of loan?
D&P: Historically (and I mean in the last year) TARP monies have not trickled down to the businessman/woman level. It’s our understanding that the community banks will have further incentives through government guarantees and improved capital ratios that will ultimately make it difficult for the banks not to loan the funds out. Any veterinarian looking to expand and/or refinance their practice should look to take advantage of these loans directly or through veterinary-specific financing intermediaries.
NS: The plan also proposes a $33 billion program to provide up to $500,000 in tax credits for businesses that add jobs or increase wages beyond the rate of inflation in 2010. Are you advising any of your clients to think about doing this, and what could a typical practice expect to gain by hiring say one extra person and raising wages above inflation?
D&P: The Small Business Association (SBA) 504 programs have been one of the government’s largest success stories when it comes to job creation. They are mandated to create a certain amount of jobs for every dollar lent. As a result, the government is looking to use this program as model for job creation.
Veterinarians could help both themselves and help stimulate the economy by hiring new employees. As it relates to inflation, the inflation rate in 2009 was at negative .34 percent. Theoretically, the inflation rate could be beaten by keeping wages the same.
NS: Another part of the proposed 2011 budget talks about raising the SBA loan limit from $2 million to $5 million. In your experience, do you think this would affect or help any veterinary practices?
D&P: It certainly would help. We know that real estate prices vary throughout the country and generally tend to increase as they get closer to major metropolitan areas. Increasing the loan limit will help practices in more expensive geographical areas and help encourage more lending on real estate. Veterinarians may now be able to use the SBA loans for further expansion as well.